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UPDATE 3-US natural gas futures end lower ahead of storage build
March 20, 2012 / 1:37 PM / 5 years ago

UPDATE 3-US natural gas futures end lower ahead of storage build

* Mild forecasts into early April weigh on prices
    * Record-high supplies continue to pressure prices
    * Coming up: API oil data Tues, Reuters natgas storage poll
Wed

 (Releads, adds quote, updates with closing prices)	
    By Joe Silha	
    NEW YORK, March 20 (Reuters) - U.S. natural gas futures
ended lower on Tuesday, after two days of modest technical
gains, as record-high supplies, mild early spring weather and
expectations for a weekly inventory build on Thursday weighed on
prices.	
    Mild weather this month has sharply slowed overall demand
and weakened cash prices relative to futures despite declines in
gas drilling, output cuts by some producers and unexpected
nuclear plant outages that have helped tighten the market.
    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 above 70 degrees Fahrenheit.
    Front-month gas futures on the New York Mercantile Exchange
 finished down 1.6 cents at $2.335 per million British
thermal units after trading in a narrow range between $2.318 and
$2.369. Gas prices have lost about 11 percent this month.	
    Pax Saunders, analyst at Gelber & Associates in Houston,
said recent price action could look like a technical bottom, but
he added, "It's difficult to imagine that we've seen a seasonal
low with ... an end-of-March storage level likely near 2.4 tcf
and no substantive production constraints on the table."	
    Traders said expectations for the year's first weekly
storage build on Thursday were also pressuring prices, noting
mild March weather could mean that the injection, or stock
building season, will start about two weeks earlier than usual.	
    	
    INVENTORY GLUT	
    U.S. Energy Information Administration data last week showed
domestic gas inventories fell to 2.369 trillion cubic feet,
still a record for this time of year after one of the mildest
winters ever slowed demand. 	
    (Storage graphic: link.reuters.com/mup44s)	
    Traders agreed some record high temperatures last week,
particularly in the Midwest, could lead to the year's first
weekly storage injection. 	
    Estimates for this week's EIA report range from a draw of 2
bcf to a build of 16 bcf, with most looking for a 10-bcf gain.
Stocks fell an adjusted 20 bcf in the same week last year, while
the five-year average decline for that week is 17 bcf.	
    Inventories are likely to finish the month at an all-time
high over 2.4 tcf, about 55 percent above normal and well above
the previous March 31 record of 2.148 tcf set in 1983.	
    The cushion could also spell more trouble for prices late in
the April-through-October stock-building season if storage
caverns fill to capacity and force more supply into the market.	
    	
        TIGHTER MARKET	
    Cheap gas has helped tighten the supply-demand balance this
year as manufacturers use more of the fuel and utilities switch
from pricier coal to gas to generate power.	
    Nuclear plant outages have also been running above normal
over the last month or so, adding as much as 1 billion cubic
feet, or 1.5 percent, to potential daily gas demand. Gas is the
fuel typically used to make up any lost nuclear generation.	
    On the supply side, low prices have slowed dry gas drilling
and forced output cuts by several producers, which could trim 1
bcf or more from daily output.	
    But traders have mostly shrugged off signs that the market
has been tightening, driving the nearby contract to a 10-year
low of $2.204 last week.	
    With production still at or near all-time peaks and
inventories set to end March at a record high, few traders
expect much upside until summer cooling loads pick up.     	
    	
    WILL PRODUCTION SLOW?    	
    Gas prices last Friday showed no reaction to Baker Hughes
data indicating the gas-directed rig count fell for the 10th
straight week to 663, its lowest in nearly 10 years.
 (Rig graphic: r.reuters.com/dyb62s)	
    Producers keep slowing dry gas drilling operations in the
face of historically low prices, but the slowdown has yet to be
reflected in pipeline flows.	
    Most analysts, noting it will be difficult to balance the
gas market without serious production cuts, expect no major
slowdown in gas output until later this year.	
    Some say the gas-directed rig count may have to drop below
600 to reduce flowing supplies significantly, with the producer
shift to higher-value oil and gas liquids plays still producing
plenty of associated gas that partly offsets any reductions in
pure dry gas output.    	
	
 (Reporting By Joe Silha; editing by Jim Marshall)

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