May 30, 2012 / 1:47 PM / 5 years ago

UPDATE 3-US natgas futures end lower 4th straight day

* New front month July contract continues slide
    * Warm weather in consuming regions to ease next week
    * US crude futures sink nearly $3/barrel, cash gas also
lower
    * Coming Up: API oil data Wed., EIA oil, gas data Thurs.

 (Updates prices to close, recasts)	
    By Eileen Houlihan	
    NEW YORK, May 30 (Reuters) - U.S. natural gas futures slid
nearly 3 percent on Wednesday, with nearby futures down nearly
12 percent in the biggest four-day drop in more than four
months.	
    Moderating weather forecasts should curb cooling demand
after a hot weekend and a warm start to the week in consuming
regions.	
    "The temperature outlook has moderated in the latest model
runs, subtracting a bit of cooling demand and adding back some
storage injections to the forecast," said Tim Evans, Citi
Futures Perspective energy analyst.	
    New front-month July natural gas futures on the New York
Mercantile Exchange fell 6.7 cents, or 2.7 percent, to
settle at a two-week low of $2.418 per million British thermal
units.	
    The June contract went off the board down more than 5
percent on Tuesday in the biggest one-day slide in nearly three
months. Futures prices are down nearly 12 percent in the largest
four-day drop since January, according to Reuters data.	
    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 27 percent on signs
that record production is finally slowing and demand is picking
up as more electric utilities switched from coal to gas.	
    Other months ended lower for a fourth straight session as
well, with the August contract down 6.9 cents at $2.471. 	
    In the cash market, gas bound for the NYMEX delivery point
Henry Hub NG-W-HH in Louisiana lost 11 cents to average $2.39,
with late deals firming to 1 cent over the new front-month July
contract, from deals done early Tuesday at a 1-cent discount to
the June contract.	
    Gas on the Transco pipeline at the New York City gate
NG-NYCZ6 slid 14 cents to $2.59.	
        	
    STORAGE STILL AT RECORD	
    U.S. Energy Information Administration data last week showed
domestic gas inventories rose 77 billion cubic feet 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 also 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.	
    Injection estimates for this week's EIA storage report
ranged from 59 bcf to 82 bcf, with most traders and analysts
expecting data will show a build of about 70 bcf when it is
released on Thursday, a Reuters poll showed. 	
    Stocks rose an adjusted 89 bcf in the same week last year,
while the five-year average build for that week is 100 bcf.	
    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.	
     	
    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; editing by Sofina Mirza-Reid and
Jim Marshall)

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