BLBG:US natural gas futures pull back after 3-month high
* Front month hits near 3-month high on storage estimate
* Production cuts, coal switching help tighten balance
* Moderate temperatures this week slow weather demand
* Coming up: EIA, Enerdata natural gas storage data Thursday
(Releads, adds cash prices, production data, updates futures
prices)
By Joe Silha
NEW YORK, May 17 (Reuters) - U.S. natural gas futures pulled
back early on Thursday after two straight session gains,
pressured by some profit-taking despite expectations for a
supportive weekly inventory report and signs of a tightening
market.
Gas prices have settled higher in seven of eight previous
sessions, gaining about 15 percent. Prices overnight climbed to
$2.676 per million British thermal units, the highest for the
front month since Feb. 23.
Traders noted that production cuts by several producers
seemed to be slowing record output, while demand has been
picking up as increased numbers of electric utilities switch to
gas from more expensive coal to generate power.
Chart traders noted technicals turned bullish over the last
month as the front month rallied some 40 percent from a 10-year
low of $1.90, breaking some key resistance along the way.
At 9:35 a.m. EDT (1335 GMT), front-month gas futures
on the New York Mercantile Exchange were down 3.3 cents, or 1.3
percent, at $2.585 per million British thermal units after
trading between $2.58 and $2.676.
Early cash quotes for Friday delivery at Henry Hub
NG-W-HH, a key supply point in Louisiana, were up 12 cents at
$2.62 per mmBtu, near a three-month high. Volume was moderate at
about 750 million cubic feet.
Hub differentials stayed little changed from Wednesday at
about 4 cents under NYMEX.
Day-ahead prices for gas on the Transco pipeline at the New
York citygate NG-NYCZ6 gained 7 cents to $2.71 despite a
fairly mild Friday outlook. Volume was light at about 265 mmcf.
While some traders said the market was due a pullback,
citing a relative strength index hovering in overbought
territory above 70, they did not rule out further upside once
higher temperatures boost air-conditioning demand.
But many remained skeptical of recent gains with storage and
production still at or near all-time highs and prices reaching
levels that could slow or even reverse utility fuel switching, a
big factor in underpinning gas demand this year.
RECORD INVENTORIES
Four of the last five weekly inventory injections have come
in below average, raising expectations that lagging storage
builds will help trim record supplies to more manageable levels
in the 185 days or so left before winter withdrawals begin.
Strong utility demand should keep this week's storage
injection also well below average. Traders and analysts polled
by Reuters expected stocks to have gained 55 billion cubic feet
last week, a build that would again cut the surplus to last year
and the five-year average.
Storage rose an adjusted 86 bcf in the same week last year.
The five-year average increase for that week is 91 bcf.
While the surplus to last year is down 10 percent from its
late-March peak, it still stands at about 800 bcf, or 44
percent, above year-earlier levels, a huge cushion to offset any
weather-related spikes in demand or storm-related supply cuts.
U.S. Energy Information Administration (EIA) data last week
showed domestic gas inventories climbed to 2.606 trillion cubic
feet, still a record high for this time.
Concerns persist that the inventory glut will drive prices
lower this spring as weather demand fades. Prices may be
pressured again this summer as storage caverns fill up. (Storage
graphic: link.reuters.com/mup44s)
Traders noted that the storage surplus to last year would
have to be trimmed by another 550 bcf to avoid breaching the
government's 4.1 tcf estimate of total capacity. Stocks peaked
last year in November at a record high of 3.852 tcf.
PRODUCTION STILL NEAR RECORD
Traders were waiting for the next Baker Hughes drilling rig
report on Friday after last week's data showed the gas-directed
rig count fell to another 10-year low.
Since peaking at 936 in October, the 36 percent drop in dry
gas drilling has raised expectations that producers were finally
getting serious about stemming the record flood of supplies.
But Baker Hughes data also showed that horizontal rigs, the
type most often used to extract oil or gas from shale, jumped to
an all-time high.
Traders noted 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)
Production cuts announced so far by some producers could
trim as much as 1 bcf per day from total output, but the EIA
still sees marketed gas production hitting a record high this
year.
Recent EIA data showed gross gas production in February fell
slightly from January's record high. The decline, only the
second in the last 12 months, stirred talk that production might
finally have peaked and be poised to slow.
Prices as of 9:52 a.m. EDT in $/mmBtu:
LAST NET PCT LOW HIGH CURRENT DAY AGO
CHNG CHNG VOL VOL
NGc1 2.573 -0.045 -1.7% 2.572 2.676 50,713 132,509
NGc2 2.652 -0.035 -1.3% 2.6510 2.748 19,683 60,969
CLc1 93.10 0.29 0.3% 92.65 93.88 75,602 284,712
CLc2 93.47 0.28 0.3% 93.03 94.24 35,192 118,662
