* Front month up from Monday's lowest mark since Feb. 2002
* Mild weather on tap for most of the nation
* US crude futures decline in early trade
* Coming Up: API oil data Tuesday, EIA oil data Wednesday
(Adds cash prices, byline, updates throughout)
By Eileen Houlihan
NEW YORK, April 3 (Reuters) - U.S. natural gas futures
seesawed on either side of unchanged early Tuesday, up from
Monday's 10-year spot chart low amid more short-covering despite
high inventories and tapering demand.
Front-month May natural gas futures on the New York
Mercantile Exchange were at $2.157 per million British
thermal units in early activity, up 0.5 cent, after sliding
Monday to $2.069, the lowest price for a front month since
February 2002.
While technical traders said the market was oversold and due
for a bounce, few expected much of one, with storage and
production at record highs and mild spring weather slowing
demand.
The front month lost 19 percent in March, its biggest
monthly drop since August 2010. The contract also shed 29
percent in January to March in the biggest quarterly decline in
two years.
In the cash market, gas bound for the NYMEX delivery point
Henry Hub NG-W-HH in Louisiana was heard at $1.94, up 6 cents
from Monday's $1.88 average, its lowest since September 2009.
Early Hub cash deals were done at a 16-cent discount to the
front little changed from deals done late Monday at a roughly
12-cent discount.
Gas on the Transco pipeline at the New York City gate
NG-NYCZ6 was heard near $2.30, up 24 cents from Monday's
average of $2.06.
PRODUCTION BIG PROBLEM FOR BULLS
Baker Hughes data on Friday showed the gas-directed rig count
rose by six to 658 after hitting a 10-year low of 652 the prior
week. It was the first gain in the gas rig count in 12 weeks.
(Rig graphic: r.reuters.com/dyb62s )
The steady drop in dry gas drilling this year -- the gas
count is still down nearly 30 percent since peaking at 936 in
mid-October -- had stirred expectations that low prices would
finally force producers to curb gas output and tighten supplies.
But the drop has yet to be reflected in pipeline flows,
which are still estimated to be at or near record high levels,
primarily due to rising output from shale.
U.S. Energy Information Administration production data last
week offered little hope for bulls, with January gross gas
output climbing to a record of 72.85 billion cubic feet per day,
eclipsing the previous peak of 72.68 bcfd in November.
The slight drop the agency reported for December, the first
measurable decline since well freeze offs curbed output in
January and February 2011, had raised expectations that
producers might finally be curtailing output.
Some analysts say the gas-directed rig count may have to
drop below 600 to reduce flowing supplies significantly, noting
the producer shift to higher-value oil and gas liquids plays
still produces plenty of associated gas that partly offsets any
reductions in pure dry gas output.
Most analysts do not expect any major slowdown in gas output
until later this year.
INVENTORY WORRIES
EIA data last week showed total gas inventories rose to
2.437 trillion cubic feet, driving stocks further into record
territory for this time of year and sharply widening the already
huge surpluses to year-ago and the five-year average.
.
(Storage graphic: link.reuters.com/mup44s)
Utilities typically build inventories from April through
October to help meet peak winter heating needs, but builds this
year started two weeks earlier than usual, and storage is set to
finish the month near 2.5 tcf, about 60 percent above normal and
easily above the previous record of 2.148 tcf set in 1983.
Early injection estimates for this week's EIA report ranged
from 30 bcf to 49 bcf versus last year's adjusted draw of 29 bcf
and the five-year average build for that week of 8 bcf.
The inventory surplus will provide a hefty cushion to meet
any spikes in demand or storm-related disruptions in supply this
year. It is expected to grow further in coming weeks, at least
until stronger air conditioning demand slows builds.
MORE FUNDAMENTALS
The National Weather Service six- to 10-day outlook issued
on Monday called for above-normal readings for about the western
two-thirds of the nation, and mostly normal readings on the East
Coast.
Nuclear plant outages were running at about 22,700
megawatts, or 23 percent, on Tuesday, down from 13,800 MW out a
year ago and up from the five-year outage rate of about 21,400
MW.
Traders said the outages should add more than 1 bcf to daily
gas demand.
(Reporting by Eileen Houlihan; Editing by John Picinich)
