* Front month up from Monday's lowest mark since Feb. 2002
* Milder weather on tap for much of the nation
* US crude futures decline in early trade
* Coming Up: EIA oil data Wednesday, EIA gas data Thursday
(Adds cash prices, details, byline)
By Eileen Houlihan
NEW YORK, April 4 (Reuters) - U.S. natural gas futures fell
about 2 cents early Wednesday, but remained above the 10-year
low set Monday, as record high inventories and production, along
with tepid spring demand, weighed on prices.
Front-month May natural gas futures on the New York
Mercantile Exchange were at $2.17 per million British
thermal units in early activity, down 1.7 cents, after sliding
Monday to $2.069 to mark the lowest price for a front month
contract since February 2002.
While technical traders said the market was oversold and due
for a bounce after sliding nearly 7 percent last week, few
expected much of one, with moderate weather forecasts expected
to limit any late heating or early cooling loads.
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 NYMEX delivery point Henry
Hub NG-W-HH in Louisiana was heard at $2.06 on active volume
of more than 1 billion cubic feet, up 12 cents from Tuesday's
$1.94 average.
Early Hub cash deals eased slightly to about 12 cents under
the front month, from deals done late Tuesday at a roughly
8-cent discount.
Gas on the Transco pipeline at the New York City gate
NG-NYCZ6 was heard near $2.33 on volume around 193 million
cubic feet, up 4 cents from Tuesday's average of $2.29.
PRODUCTION NOT EXPECTED TO SLOW SOON
Baker Hughes data on Friday showed the gas-directed rig
count rose for the first time in 12 weeks to 658. The count hit
a 10-year low of 652 the prior week.
(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. 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 range
from 10 bcf to 46 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 Tuesday again 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 21,600
megawatts, or 22 percent, on Wednesday, down from 24,300 MW out
a year ago and a five-year outage rate of about 22,500 MW.
Traders said the outages should add more than 1 bcf to daily
gas demand.
(Reporting by Eileen Houlihan; Editing by John Picinich)
