June 15, 2012 / 1:26 PM / 7 years ago

US gas futures seesaw after Thursday's big jump

* Front month seesaws after 2-week spot chart high
    * Milder weather on tap in 6- to 10-day outlook
    * Recent storage builds falling well below average
    * Coming Up: Baker Hughes gas drilling rig data Friday

    By Eileen Houlihan	
    NEW YORK, June 15 (Reuters) - U.S. natural gas futures were little changed
early Friday, with most momentum still leaning to the upside after Thursday's
more than 14 percent rise, the biggest one-day gain in nearly three years.	
    Weekly storage data on Thursday showed a smaller-than-expected build to
inventories, forcing prices through key technical resistance at the 40-day
moving average in its wake.	
    While weather across much of the nation remained fairly mild and the
tropical front was quiet, the recent trend in storage builds falling below
average for the past nine out of 10 weeks had traders cautious.	
    Front-month July natural gas futures on the New York Mercantile Exchange
 were at $2.48 per million British thermal units in early trading, down
1.5 cents.	
    But the contract jumped as high as $2.557 in electronic trading, a two-week
spot high extending Thursday's 14.19 percent surge.	
    Futures hit a 3-1/2-month high of $2.759 in mid-May, but many traders said
the jump removed gas from favor over coal for power generation. 	
    But since posting a 10-year low of $1.902 twice in late April, nearby
futures are up 30 percent on signs that record production was finally slowing
and demand picking up as more electric utilities switched from coal to gas.	
    	
    LIGHT BUILD BUT STORAGE STILL AT RECORD	
    Thursday's gas storage report from the U.S. Energy Information
Administration showed total domestic gas inventories rose last week by 67
billion cubic feet to 2.944 trillion cubic feet. 	
    The build fell short of a Reuters poll estimate of 74 bcf and came in well
below last year's gain of 72 bcf and the five-year average increase for that
week of 88 bcf.	
    Lagging stock builds this spring in the past nine out of 10 weeks have
raised expectations that record-high storage can be trimmed to more manageable
levels in the 22 weeks left before winter withdrawals begin.	
    The weekly build trimmed the surplus to last year to 32 percent above the
same week in 2011 and sliced the excess versus the five-year average to 29
percent.    	
    (Storage graphic: link.reuters.com/mup44s) 	
    Concerns remain that the storage glut will drive prices lower this summer as
storage caverns fill. Inventories stand at 72 percent full, with
producing-region stocks at 82 percent of capacity.	
    The storage surplus to last year will have to be cut by at least another 460
bcf to avoid breaching the government's 4.1-tcf estimate of capacity. Stocks
peaked last year in November at a record high of 3.852 tcf.	
    The EIA on Tuesday said it expected gas storage to climb to a record 4.015
tcf by the end of October.	
    Early injection estimates for next week's EIA report range from 47 bcf to 72
bcf versus last year's adjusted build of 90 bcf and a five-year average increase
for that week of 87 bcf.	
        	
    PRODUCTION GROWTH SLOWING, STILL RECORD OUTPUT
    The EIA also on Tuesday trimmed its estimates for domestic natural gas
production and consumption growth in 2012.	
    Gas demand picked up sharply this year as spring prices hit 10-year lows,
prompting some electric utilities to switch from coal to cheaper gas for power
generation.	
    EIA expects 2012 marketed gas production to average a record high 68.47 bcf
per day, up 3.4 percent from last year. But demand in 2012, driven by strong
gains in the electric power sector, was expected to rise 4.1 percent.
 	
    Baker Hughes data last week showed the gas-directed rig count fell to 565,
its sixth drop in seven weeks and the lowest level in nearly 13 years.
 	
    (Graphic: r.reuters.com/dyb62s )	
    The 40 percent drop in dry gas drilling in the last eight months has raised
expectations that producers were finally getting serious about slowing record
supplies. 	
    The shift away from dry gas to higher-value shale oil and shale gas liquid
plays still produces plenty of associated gas that ends up in the market after
processing. That has slowed the overall drop in dry gas output.	
    Traders noted recent declines in dry gas drilling and planned output cuts by
several producers seemed to be taking a modest toll on gas production, but
analysts say cuts so far of about 1 bcf per day were not enough to significantly
reduce supplies.	
    	
    MORE FUNDAMENTALS	
    The National Weather Service's six to 10-day outlook issued on Thursday
called for above-normal readings across much of the eastern U.S. and in parts of
the Southwest, with normal readings in Florida, Texas and the mid-Continent and
below-normal readings along the West Coast.	
    Nuclear power plant outages were running at about 11,400 megawatts, or 11
percent, on Friday, up from 9,500 MW out a year ago and a five-year outage rate
of about 7,000 MW. 	
    The U.S. National Hurricane Center said tropical cyclone formation was not
expected during the next 48 hours. The Atlantic hurricane season runs from June
1 through Nov. 30.	
	
 (Reporting by Eileen Houlihan; Editing by)
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