March 20, 2012 / 1:17 PM / 5 years ago

US natgas seesaws early, mild weather still weighs

* Front month remains above last week's 10-year spot low
    * Mild weather on tap for most of nation
    * US crude futures sink more than $1/barrel early
    * Coming Up: API oil data Tuesday, EIA oil data Wednesday

    NEW YORK, March 20 (Reuters) - U.S. natural gas futures
seesawed on either side of positive territory early Tuesday,
remaining just above last week's 10-year spot chart low, but
mild weather across most of the nation and bloated inventories
continued to weigh on sentiment.	
    Front-month April natural gas futures on the New York
Mercantile Exchange were at $2.35 per million British
thermal units in early activity, down 0.1 cent.	
    Last week the April contract slid to $2.204, the lowest
price for a front month in just over 10 years.	
           	
    STORAGE OVERHANG A PROBLEM FOR PRICES	
    Last week's storage report from the U.S. Energy Information
Administration showed total domestic gas inventories fell to
2.369 trillion cubic feet but remain 45 percent above year-ago
levels and nearly 52 percent above the five-year average level.
 	
    (Storage graphic: link.reuters.com/mup44s)	
    With extreme mild weather across much of the nation last
week, most traders expect this week's EIA report to show an
early injection into storage.	
    Early estimates for this week's EIA report range from a
build of 5 bcf to 14 bcf versus the year-ago adjusted decline of
20 bcf and a five-year average drop for that week of 17 bcf.	
    Storage is likely to finish the month at a new all-time high
over 2.4 tcf, 55 percent above normal and well above the
previous record of 2.148 tcf set in 1983.	
    The cushion could spell more trouble for prices late in the
summer stock-building season if storage caverns fill to capacity
and force more supply into the market.	
    	
    OUTAGES, CUTS COULD HELP TIGHTEN MARKET	
    Nuclear plant outages were running at about 20,900
megawatts, or 21 percent, on Tuesday, up from 16,700 MW out a
year ago and a five-year outage rate of about 16,200 MW.
 	
    Traders said the outages could add more than 1 bcf to daily
gas demand.	
    And planned output cuts by producers could trim 1 bcf per
day or more from flowing supply. 	
    Relatively cheap gas has also drawn more industrial use and
prompted additional utility fuel switching away from more
expensive coal.	
     	
    MORE FUNDAMENTALS	
    The National Weather Service six- to 10-day outlook issued
on Monday again called for above or much-above-normal readings
for more than the eastern two-thirds of the nation and
below-normal readings only on the West Coast.	
    Baker Hughes drilling data last week showed the gas-directed
rig count fell for a 10th straight week to a 10-year low of 663.
 	
    The steady drop in gas-directed drilling has stirred talk
that low prices might finally slow output.	
    (Rig graphic: r.reuters.com/dyb62s)	
    Analysts agree it can take months for a slowdown in drilling
to translate into lower production, noting the producer shift in
spending to higher-value oil and gas liquids still produces
plenty of associated gas that partly offsets reductions in dry
gas output.	
    A recent Bernstein report said the gas-directed rig count
would have to drop to about 600 before it would be comfortable
forecasting flat to falling production, but some traders think
that number is still too high.	
            	
	
 (Reporting by Eileen Houlihan)

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