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UPDATE 3-U.S. natural gas futures end down for third day
September 17, 2012 / 1:57 PM / 5 years ago

UPDATE 3-U.S. natural gas futures end down for third day

* Mild weather in consuming regions hurting demand
    * Storage builds seen picking up sharply in coming weeks
    * Record inventories, production also weigh on sentiment

 (Releads, adds analyst quote, spread data, updates prices)
    By Joe Silha
    NEW YORK, Sept 17 (Reuters) - U.S. natural gas futures ended
lower on Monday for a third straight session, pressured by
forecasts for mild U.S. weather the next two weeks that should
slow overall demand and force more gas into already swollen
inventories.
    With summer heat winding down and storage and production
still running at or near record highs for this time of year,
many traders expect more downside, at least until cooler
temperatures move in to stir up some heating demand.
    Nuclear plant outages are running well above year-ago levels
and could lend some support to gas prices - plants burning gas
usually make up for missing nuclear generation - but traders
said overall power loads have slowed as milder late-summer
weather reduced the need for air conditioning. 
    "Though storage space fear has diminished, ample supplies,
mild weather and a lack of shoulder month demand are still a
drag on October (futures)," Gelber & Associates senior analyst
Aaron Calder said in a report.
    Front-month gas futures on the New York Mercantile
Exchange ended down 7.8 cents, or 2.7 percent, at $2.865 per
million British thermal units after trading between $2.856 and
$2.983. The nearby contract has dropped 6.5 percent in the last
three sessions.
    On Thursday, the front month climbed to a five-week high of
$3.07 before settling slightly lower on profit-taking.
    Calder also noted that Central Appalachian coal prices have
fallen to two-year lows at about $2.25, raising the possibility
that some utilities that have been burning cheaper gas to
generate power could switch back to coal.
    A loss of that utility demand, which helped prop up gas
prices this summer, could lead to bigger weekly storage builds
and renew concerns about inventories climbing to near capacity
before winter withdrawals begin.
    AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas consuming regions, to vary on either side of
normal for the next two weeks. Traders said highs mostly above
70 degrees Fahrenheit were not likely to generate much load.
    Relative weakness up front widened spreads to winter months
for a fourth day, with the January premium to October gaining
3.9 cents, or 7.6 percent, to close at 55.2 cents. That spread
settled on Tuesday at 45.8 cents, its smallest in 2-1/2 months.
    
    RIGS DECLINE, PRODUCTION STAYS HIGH 
    Data from Baker Hughes on Friday showed that the
gas-directed rig count posted its 15th drop in 17 weeks, falling
by four last week to 448, the lowest since June
1999. 
    The nearly steady decline in gas-directed drilling over the
last 11 months - the count is down 52 percent since peaking at
936 in October - has fed expectations that producers were
getting serious about stemming the flood of record supplies. But
so far there is little evidence that gas output is slowing.
    (Rig graphic: r.reuters.com/dyb62s )
    Dry gas drilling has been largely uneconomical at current
prices, but the gas produced from more-profitable shale oil and
shale gas liquids wells is likely to keep gas production at a
record high for a second straight year.
    The U.S. Energy Information Administration last week said it
expected marketed gas production in 2012 to hit a record for a
second straight year, climbing 4 percent from 2011 levels to
68.86 bcf per day.    
    STILL-HUGE STORAGE SURPLUS
    EIA data on Thursday showed that domestic gas inventories
for the week ended Sept. 7 climbed by 27 billion cubic feet to
3.429 trillion cubic feet, still a record high for this time of
year. 
    It was the 19th time in the last 20 weeks that the build
fell short of the seasonal norm.   
    (Storage graphic: link.reuters.com/mup44s) 
    But while record heat this summer helped cut a huge storage
surplus to last year by more than 60 percent from its late-March
peak near 900 bcf, traders noted that autumn injections are now
poised to pick up as weather-demand fades.
    At 81 percent full, stocks are hovering at levels not
normally reached until the first week of October and still offer
a huge cushion that can help offset any spikes in demand or Gulf
Coast supply disruptions from storms. 
    Early injection estimates for Thursday's EIA report range
from 62 bcf to 73 bcf versus a year-earlier build of 89 bcf and
the five-year average increase for the week of 73 bcf.          
    Concerns remain that the inventory overhang will pressure
prices this autumn if storage caverns fill to near capacity and
back more natural gas onto the market.

 (Additional reporting by Eileen Houlihan; editing by Jim
Marshall and Bob Burgdorfer)

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