March 14, 2012 / 1:37 PM / 6 years ago

UPDATE 3-Front-month US natgas ends lower, weather weighs

* Front month slips, remains above Tuesday's 10-yr low
    * Mild weather on tap for most of nation
    * US crude futures end down more than $1/barrel
    * Coming Up: EIA natgas storage data Thursday

 (Updates prices to settlement, changes quote, recasts)	
    By Eileen Houlihan	
    NEW YORK, March 14 (Reuters) - Front-month U.S.
natural gas futures slid slightly on Wednesday but managed to
remain above Tuesday's 10-year spot chart low as weaker crude,
mild late-winter weather and swelling inventories all pressured
prices.	
    But some traders, noting other months showed gains on the
day, said long-term prices were showing signs of life as recent
weakness that led to planned production cuts should encourage
increased industrial demand.	
    "Though the near-term outlook appears negative for prices,
longer-term, low prices in the U.S. should encourage increased
industrial demand as industries like those involved in chemical
production take advantage of the low price," optionsXpress
analysts Mike Zarembski and Rob Kurzatkowski said in a market
update.	
    Front-month April natural gas futures on the New York
Mercantile Exchange slid 1.5 cents, or less than 1
percent, to settle at $2.284 per million British thermal units.	
    On Tuesday the contract slid to $2.204, the lowest price for
a front month in just over 10 years. 	
    But forward contracts ended higher on Wednesday, with the
May contract rising 0.8 cent to finish at $2.416 and
summer months gaining about 3 cents each.	
    While some traders waited for more direction from government
storage data due out Thursday, most noted stocks remain more
than 40 percent above last year's levels and nearly 50 percent
above the five-year average after one of the mildest winters on
record reduced demand nationwide. At the same time, prolific
production from shale plays continued to swamp the market.	
    More mild weather is expected to keep the pressure on prices
in the coming days.	
    In the cash market, gas bound for the NYMEX delivery point
Henry Hub NG-W-HH in Louisiana slid 2 cents on average to
$2.13, its lowest mark since September 2009.  	
    Early Hub cash deals also eased to about 15 cents under the
front month contract from deals done late Tuesday at about a
9-cent discount.  	
    Gas on the Transco pipeline at the New York City gate
NG-NYCZ6 fell 4 cents to $2.22, also at its lowest price since
September 2009, while Chicago gas NG-CHGC was 1 cent lower at
$2.11.	
    Temperatures in both key gas-consuming cities were seen in
the low-60s to mid-70s degrees Fahrenheit for the next several
days, according to the Weather Channel's weather.com.	
    The National Weather Service six- to 10-day outlook issued
on Tuesday again called for above or much-above-normal readings
for about the eastern two-thirds of the nation and below-normal
readings only in the West.	
    	
    STORAGE OVERHANG A PROBLEM FOR PRICES	
    Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic inventories
fell to 2.433 trillion cubic feet, still at record highs for
this time of year, and more than 700 bcf, or 44 percent, above
last year and 792 bcf, or 48 percent, above the five-year
average level. 	
    (Storage graphic: link.reuters.com/mup44s)	
    Withdrawal estimates for this week's EIA report ranged from
45 bcf to 73 bcf, with most traders and analysts expecting data
will show a draw of about 57 bcf when it is released early
Thursday, a Reuters poll showed. 	
    Stocks fell an adjusted 60 bcf in the same week last year,
and on average over the past five years have dropped 79 bcf that
week.	
    With no extreme cold on the horizon, stocks are likely to
end winter at an all-time high of 2.2 tcf, well above the
previous record of 2.148 tcf set in 1983.	
    The cushion could also spell trouble for prices late in the
summer stock-building season if storage caverns fill to capacity
and force more supply into the market.	
    	
    OUTAGES, CUTS COULD HELP TIGHTEN MARKET	
    Nuclear plant outages were running at about 19,600
megawatts, or 20 percent, on Wednesday, up from 15,800 MW out a
year ago and a five-year outage rate of about 15,200 MW.
 	
    Traders said the outages could add more than 1 bcf to daily
gas demand.	
    And planned output cuts by producers could trim 1 bcf per
day or more from flowing supply. 	
    Relatively cheap gas has also drawn more industrial use and
prompted additional utility fuel switching away from more
expensive coal.	
    But with production still running at or near all-time highs,
 few traders expect much upside in prices in the near term.	
     	
    MORE FUNDAMENTALS	
    Baker Hughes drilling data last week showed the gas-directed
rig count fell for a ninth straight week to a 32-month low of
670. 	
    The steady drop in gas-directed drilling has stirred talk
that low prices might finally slow output.	
    (Rig graphic: r.reuters.com/dyb62s)    	
    Analysts agree it can take months for a slowdown in drilling
to translate into lower production, noting the producer shift in
spending to higher-value oil and gas liquids plays still
produces plenty of associated gas that partly offsets any
reductions in dry gas output.	
    A recent Bernstein report said the gas-directed rig count
would have to drop to about 600 before it would be comfortable
forecasting flat to falling production.	
    Most analysts, noting it will be difficult to balance the
gas market without serious production cuts, do not expect any
major slowdown in gas output until late this year.	
                     	
	
 (Reporting by Eileen Houlihan and Edward McAllister; editing by
Jim Marshall)

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