February 28, 2012 / 2:41 PM / 7 years ago

UPDATE 3-US natural gas ends down for 4th day, forecasts turn milder

* Computer weather models turn milder overnight

* Record-high supplies also pressure prices

* Late-winter nuclear plant outages help lift gas demand

* Recent gas rig count declines, producer cuts limit downside

* Coming Up: EIA oil data, Reuters natgas storage poll Wednesday (Releads, updates with closing prices, adds quote)

By Joe Silha

NEW YORK, Feb 28 (Reuters) - U.S. natural gas futures ended lower on Tuesday for a fourth straight session as the milder overnight turn in computer weather models and bloated supplies continued to weigh on prices despite some signs that the market may be tightening.

While planned output cuts by several key producers and some unexpected nuclear plant outages could provide some support to prices, traders said a near-record mild winter and high supplies were likely to keep prices on the defensive in the near term.

“Continued weak weather patterns as we wind down the heating season remains the primary price driver,” Gelber & Associates analyst Pax Saunders said in a report, noting gas fundamentals were still “awful”.

The new front-month April gas contract on the New York Mercantile Exchange finished down 8.4 cents, or 3.2 percent, at $2.519 per million British thermal units after trading between $2.511 and $2.624.

AccuWeather.com expects temperatures in the Northeast and Midwest, key gas-consuming regions, to mostly average above normal for the next two weeks, with daytime highs, at times, climbing near 60 degrees Fahrenheit (16 degrees Celsius).

“An already very warm map has turned even warmer in this (11-15 day) time frame, as much-aboves have been expanded to include more of the mid-Atlantic and Midwest,” private forecaster MDA EarthSat said in its morning report, noting above-normal readings also returned to the South.

Gas prices hit a 10-year low of $2.231 per mmBtu in late January but have mostly been locked in a trading range between $2.40 and $2.70 ever since, after several producers announced plans to shut in some output due to low prices.

TIGHTER MARKET?

Traders noted recent weekly inventory reports have been hinting at a modest tightening in the supply-demand balance, but the slightly supportive data has failed to stir buying.

Weather-related demand this winter has been well below normal, and most traders agree the huge overhang in storage left after mild winter will likely make it difficult for prices to rally much in the near term.

But late-season nuclear plant outages are still running about 6,300 megawatts above normal for this time of year, which could add more than 1 billion cubic feet to daily gas demand.

In addition, relatively cheap gas has drawn more industrial use and prompted more utility fuel switching away from coal.

RECORD STOCKS, A BIG PROBLEM FOR BULLS

Buyers shrugged off last week’s U.S. Energy Information Administration report showing that total domestic gas inventories fell by a larger-than-expected 166 billion cubic feet to 2.595 trillion cubic feet.

The draw was above the Reuters poll estimate of 158 bcf, and trimmed both the inventory surplus to last year and the five-year average.

But storage is still at record highs for this time, standing at 753 bcf, or 41 percent, above a year ago and 744 bcf, or 40 percent, above average, a huge surplus that is likely to cap any attempts to rally prices in the near term.

(Storage graphic: link.reuters.com/mup44s )

Withdrawal estimates for Thursday’s EIA report range from 82 bcf to 100 bcf, with most in the 90 bcf area. Stocks fell an adjusted 85 bcf during the same week last year. The five-year average decline for that week is 118 bcf.

One of the mildest winters on record has slowed average storage draws by about 510 bcf, or 29 percent.

Last winter at this time, cold weather forced storage owners to pull more than 2 tcf from inventory to help meet the surge in heating demand, but this season, only about 1.3 tcf of storage gas has been burned up, a 37 percent drop.

With no extreme cold on the horizon, most analysts expect stocks to end the heating season at an all-time high of 2.2 tcf, well above the previous record of 2.148 tcf set in 1983.

The inventory overhang could also spell trouble for prices late in the summer stock-building season if storage caverns fill to capacity and force more supply into the market.

Estimates for U.S. working gas storage capacity range from 4.1 tcf to 4.4 tcf, a level that could be tested if storage builds from April through October match last year’s 2.2 tcf.

WHEN WILL PRODUCTION SLOW?

Baker Hughes drilling data last week showed the gas-directed rig count fell for the seventh straight week to a 29-month low of 710. The 24-percent slide in the gas rig count since peaking last year at 936 in October has stirred talk that low prices may finally slow output.

(Drilling rig graphic: r.reuters.com/dyb62s)

But while producers have slowed dry-gas drilling operations, traders noted their shift in spending to higher-value oil and gas liquids plays still produces plenty of associated gas that casts doubts about the impact on overall supply.

In a report last week, Bernstein Research said the gas-directed rig count would have to drop to about 600 before they would be comfortable forecasting flat to falling production.

Most analysts agree it will be difficult to balance the gas market without serious production cuts.

Most do not see any major slowdown in gas output until late this year, noting the recent slowdown in drilling has not yet been reflected in pipeline flows. (Reporting By Joe Silha; Editing by Marguerita Choy)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below