April 5, 2012 / 1:52 PM / 5 years ago

UPDATE 3-US natgas futures end near 10-year low as glut grows

* Front-month slips to near 10-year low after big stock
build
    * Record high production also weighs on prices
    * Cool forecasts, pre-holiday short covering limit downside

 (Releads, adds quote, Baker Hughes data, closing prices)	
    By Joe Silha	
    NEW YORK, April 5 (Reuters) - Front-month U.S. natural gas
futures ended just above a 10-year low on Thursday, pressured by
another bearish weekly inventory report despite cooler forecasts
for late this week and early next week that should boost demand.	
    The U.S. Energy Information Administration reported total
domestic gas inventories rose last week by 42 billion cubic feet
to 2.479 trillion cubic feet 	
    It was the third build in 2012 and the second straight week
that injections came in well above market expectations. Traders
and analysts polled by Reuters had expected a 34 bcf gain.	
    The increase drove stocks further into record territory for
this time of year and sharply widened the surplus to a year-ago
and the five-year average.	
    The front-month gas futures contract on the New York
Mercantile Exchange finished down 5.2 cents, or 2.4 percent, at
$2.089 per million British thermal units after touching an
intraday low of $2.084 at midday.	
    "The (EIA build) number came in higher than expected. It was
another bearish number, and it looks like they're jamming it in
early in the producing region," a Massachusetts trader said.	
    "Going forward the weather looks cool relative to normal, so
we could see a little demand, but at some point, we're going to
have to see more gas shut ins," he added.	
    The nearby contract, which tumbled 19 percent in March in
its biggest monthly drop since August 2010, hit a 10-year low of
$2.069 on Monday.	
    Despite the steady drum beat of bearish data on inventories,
production and drilling over the last week, traders said the
cooler outlook and short-covering ahead of the long holiday
weekend likely tempered some of the downside today.	
    NYMEX electronic and floor trading will be closed on Friday
for the Good Friday holiday.	
    "The forecast has shifted slightly cooler from the Midwest
to Southeast, resulting in an expansion of belows for the (6-10
day) period. The upcoming cold shot should bring many areas
across the eastern half to their coolest levels in a month,"
private forecaster MDA EarthSat said in its morning report.	
    Traders also said warm temperatures in Texas and parts of
the South this week have stirred some air conditioning demand.	
              	
    RECORD STORAGE, THE BIGGEST PROBLEM FOR PRICES
    Utilities typically build inventories from April through
October to help meet peak winter heating needs, but this year
storage injections started a couple of weeks early.	
    With stocks already at record highs for this time, storage  
  could turn out to be the biggest pressure on prices this year.	
    The weekly inventory build sharply widened the surplus to
last year by 71 bcf to 887 bcf, or 56 percent. The excess to the
five-year average climbed 34 bcf to a whopping 934 bcf, or 60
percent. (Storage graphic: link.reuters.com/mup44s)
 	
    Storage finished March near 2.5 tcf, about 60 percent, or
950 bcf, above normal and easily above the previous March 31
record of 2.148 tcf from 1983.    	
    Early injection estimates for next week's EIA report range
from 11 bcf to 45 bcf versus last year's adjusted build of 7 bcf
and the five-year average increase for that week of 22 bcf.	
    The huge inventory overhang could drive prices still lower
this spring as seasonal weather demand fades, then pressure
prices again later in the injection season if storage caverns
fill to capacity and force more gas into a well-supplied market.
   	
	
    PRODUCTION, NOT SLOWING MUCH YET	
    Gas prices on Thursday failed to garner support from     
Baker Hughes data showing the gas-directed rig count fell this
week to its lowest level in nearly 10 years. [ID:nL2E8F55F7)	
    (Graphic on rigs vs prices: r.reuters.com/dyb62s)	
    The count, which slid by 11 to 647 in its 12th decline in 13
weeks, is at its lowest since May 2002 when there were 640 rigs
operating. The numbers were released a day early on Thursday due
to the Good Friday holiday.	
    The fairly steady drop in dry gas drilling this year -- the
gas rig count is down 31 percent since peaking at 936 in
mid-October -- had stirred expectations that low prices were
finally prompting producers to slow record gas output.	
    But the drop has yet to be reflected in pipeline flows,
which are still estimated to be at or near record highs,
primarily due to rising output from shale.    	
    Horizontal rigs, the type most often used to extract oil or
gas from shale, fell for the second time in three weeks,
slipping 15 to 1,165, but the count is not far below the
all-time high of 1,185 hit in late January.	
    The share of horizontal rigs drilling for gas has fallen to
38 percent from 78 percent just two years ago, but analysts say
any slowdown in production could take a lot more time, noting
increased drilling for more profitable oil and liquids-rich 
prospects still produces plenty of associated gas.	
    EIA production data last week offered little hope for bulls,
with January gross gas output climbing to a record of 72.85 bcf
per day, eclipsing the previous peak of 72.68 bcfd in November. 	
    Some analysts say the gas-directed rig count may have to
drop below 600 to reduce flowing supplies significantly. Most
analysts do not expect any major slowdown in gas output until
later this year.	
	
 (Additional reporting by Edward McAllister in New York; Editing
by David Gregorio and Jim Marshall)

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below