May 30, 2012 / 1:27 PM / 5 years ago

U.S. natgas futures slip for 4th straight day

* New front month July contract continues slide
    * Warm weather in consuming regions to ease next week
    * U.S. crude futures sink more than $1/barrel early
    * Coming Up: API oil data Wed., EIA oil, gas data Thurs.

    By Eileen Houlihan	
    NEW YORK, May 30 (Reuters) - U.S. natural gas futures slid
for a fourth straight session early Wednesday, pressured by
moderating weather forecasts that should curb heating demand
after a hot weekend and start to the week in consuming regions
of the nation.	
    New front-month July natural gas futures on the New York
Mercantile Exchange were at $2.44 per million British
thermal units in early trade, down 4.5 cents, or nearly 2
percent.	
    The June contract went off the board down more than 5
percent on Tuesday in the biggest one-day slide in nearly three
months and futures fell more than 11 percent in the largest
three-day drop in nearly four months.	
    The front month hit a 3-1/2 month high of $2.759 just over a
week ago, with most traders noting the rise 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 still up about 28 percent on signs
that record production is finally slowing and demand is picking
up as more electric utilities switched from coal to gas.	
    	
    STORAGE STILL AT RECORD	
    U.S. Energy Information Administration data last week showed
domestic gas inventories rose to 2.744 trillion cubic feet.
 	
    (Storage graphic: link.reuters.com/mup44s)  	
    The weekly build trimmed the surplus to last year to 750
bcf, or 38 percent, and cut the excess versus the five-year
average to 753 bcf, or 38 percent.    	
    The surplus to last year has dropped 15 percent from
late-March highs, but stocks remain at record highs for this
time of year. Concerns remain that the glut will drive prices
lower this summer as storage caverns fill.	
    Weekly inventory builds have fallen below average in six of
the last seven weeks, but traders said more undersized builds
will be needed to trim the overhang to more manageable levels in
the 175 days or so left before winter withdrawals begin.	
    The storage surplus to last year will have to be cut by at
least another 500 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.	
    Early injection estimates for this week's EIA report range
from 59 bcf to 90 bcf versus last year's adjusted build of 89
bcf and the five-year average increase for that week of 100 bcf.	
    	
    PRODUCTION NEAR RECORD	
    Despite declines in dry gas drilling and planned output cuts
by several key producers, gas production is still flowing at
near-record highs. 	
    Announced cuts so far have slowed output by less than 1 bcf
per day, or just a little over 1 percent, not enough to make a
real dent in a seriously oversupplied gas market.	
    Baker Hughes data last week showed the gas-directed rig
count fell by six to a 10-year low of 594. The near 37 percent
drop in dry gas drilling since peaking at 936 in October has
stirred talk that producers were finally getting serious about
stemming the flood of supplies.	
    But 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. 	
    (Rig graphic: r.reuters.com/dyb62s)	
    	
    MORE FUNDAMENTALS	
    The National Weather Service's six- to 10-day outlook issued
on Tuesday called for above-normal readings for about the
eastern two-thirds of the nation and normal or below-normal
readings only on the West Coast.	
    But some private forecasters, including MDA EarthSat, were
calling for cooler weather in the Midwest to Northeast over the
same time frame.	
    Nuclear power plant outages were running at about 17,400
megawatts, or 17 percent, on Wednesday, down from about 21,300
MW out a year ago but up from a five-year outage rate of about
13,100 MW. 	
	
 (Reporting by Eileen Houlihan)

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