August 21, 2012 / 1:37 PM / 5 years ago

U.S. natgas futures edge higher, warmer forecasts lift

* Front month well below recent 7-1/2-month high
    * Warm weather back on tap for consuming regions
    * Stir in tropical activity also supports prices
    * Coming Up: API oil data Tuesday, EIA oil data Wednesday

    By Eileen Houlihan
    NEW YORK, Aug 21 (Reuters) - U.S. natural gas futures edged
higher early Tuesday, lifted by revised forecasts for a return
of warmer weather in consuming regions of the nation.
    A recent stir in tropical activity and strong nuclear power
plant outages were also keeping traders cautious.
    But most expect prices to have a hard time breaking back
above $3 per million British thermal units, the level where gas
loses much of its appeal over coal for power generation.
    As of 9:25 a.m. EDT (1325 GMT), front-month September
natural gas futures on the New York Mercantile Exchange 
were at $2.80 per mmBtu, up 2.4 cents, or a little less than 1
percent.
    The nearby contract peaked at $3.277 in late July, its
highest mark since December.
    The National Weather Service's six to 10-day outlook issued
on Monday called for above-normal temperatures across much of
the nation, with below-normal readings only on the West Coast.
    The National Hurricane Center said a low pressure system off
the northeastern coast of Mexico had a 30 percent chance to
develop further over the next 48 hours, while Tropical
Depression Nine was headed for the Lesser Antilles and could
become a tropical storm today.
    On the nuclear front, total outages were about 8,100
megawatts, or 8 percent of U.S. capacity, on Tuesday, down from
about 8,400 MW out on Monday, but up from 5,400 MW out a year
ago and a five-year outage rate of about 5,900 MW.
 
    
    BLOATED STORAGE DESPITE LIGHT WEEKLY BUILDS
    Last week's gas storage report from the U.S. Energy
Information Administration showed domestic gas inventories rose
by 20 billion cubic feet to 3.261 trillion cubic feet.
 
    The build came in below the year-ago and five-year average
increase for that week of 43 bcf, a 16th straight week the
injection has fallen short of seasonal norms.
    But at 442 bcf, or 16 percent above the same week in 2011,
total storage is still at record highs for this time of year,
standing at 79 percent full, a level not normally reached until
the third week of September.
    (Storage graphic: link.reuters.com/mup44s) 
    Concerns remain that the storage overhang could drive prices
to new lows later this summer if inventories climb to levels
that test the government's 4.1-tcf estimate of capacity.
    Early injection estimates for this week's EIA report ranged
from 33 bcf to 40 bcf versus a year-earlier build of 66 bcf and
the five-year average increase for the week of 53 bcf.
    
    HIGH PRODUCTION
    Baker Hughes drilling rig data on Friday showed the
gas-directed rig count fell for the 12th time in 13 weeks to a
13-year low of 484. 
    (Rig graphic: r.reuters.com/dyb62s)
    Dry gas drilling has become largely uneconomical at current
prices, and a 48 percent drop in the gas rig count over the last
nine months has fed expectations that producers were getting
serious about slowing record output.
    But drillers have moved rigs to more-profitable shale oil
and shale gas liquid plays, which produce plenty of associated
gas that ends up in the market after processing.    
    Traders have been looking for signs that relatively low gas
prices might finally slow record output, but production is still
at 3 bcfd, or 4.3 percent, above the same year-ago month.       

 (Reporting by Eileen Houlihan; Editing by Marguerita Choy)

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