RTRS: US natgas futures seesaw early after four straight losses
* Front month well below last week's 7-1/2-month high
* Milder weather on tap in longer-term forecasts
* Stir in tropical activity has some traders cautious
* Coming Up: API oil data Tuesday, EIA oil data Wednesday
(Adds cash prices, updates throughout)
By Eileen Houlihan
NEW YORK, Aug 6 (Reuters) - U.S. natural gas futures
seesawed on either side of unchanged in early trading Monday,
with traders expecting milder weather in long-term outlooks to
make for a fifth straight session of losses.
But a recent stir in tropical activity and some lingering
heat in the near term could limit losses.
Others said prices will have a hard time breaking back above
the $3 level, where gas loses much of its appeal over coal for
power generation.
As of 9:30 a.m. EDT (1330 GMT), front-month September
natural gas futures on the New York Mercantile Exchange
were at $2.865 per million British thermal units, down 1.2
cents, after trading between $2.801 and $2.893.
The front month slid 10.5 percent in the previous four
sessions, its biggest four-day drop in more than two months.
Last Tuesday the nearby contract rose as high as $3.277, its
highest level since December.
Gas prices hit decade-lows below $2 this spring but
rebounded about 65 percent amid record heat this summer and
increased demand from utilities switching from coal to cheaper
gas.
The heat has also slowed storage builds below the seasonal
norm for 14 straight weeks and pulled a record inventory surplus
to year-ago down nearly 47 percent from late-March highs.
In the cash market, gas bound for the NYMEX delivery point
Henry Hub NG-W-HH in Louisiana was heard early at $2.90 on
volume near 667 million cubic feet, down 1 cent from Friday's
average of $2.91.
But early Hub cash deals firmed to about 5 cents over the
front month contract, from deals done late Friday at a 2-cent
premium.
Gas on the Transco pipeline at the New York citygate
NG-NYCZ6 was heard early near $3.12 on volume near 323 mmcf,
up 2 cents from Friday's average of $3.10.
STORAGE REMAINS BLOATED
Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic gas inventories
rose by 28 billion cubic feet to 3.217 trillion cubic feet.
The build came in above Reuters poll estimates for a 23 bcf
build, but it again fell well short of the year-earlier gain of
43 bcf and the five-year average increase for the week of 56
bcf.
Lagging storage builds this season have raised expectations
that record-high storage can be trimmed to more manageable
levels in the 15 weeks left before winter withdrawals begin.
The weekly injection trimmed the surplus to last year to 472
bcf, or 17 percent, above the same week in 2011. It also sliced
the excess versus the five-year average to 407 bcf, or 14
percent.
(Storage graphic: link.reuters.com/mup44s)
But total storage remains at record highs for this time of
year and, at 78 percent full, stands at a level not normally
reached until mid-September. Producing-region stocks, which lost
6 bcf last week, are at 83 percent of estimated capacity.
Concerns remain that the storage overhang could drive prices
to new lows later this summer if inventories climb to levels
that would test the government's 4.1-tcf estimate of capacity.
The EIA estimates that gas storage will climb to 4.002 tcf
by the end of October.
Early injection estimates for this week's EIA report range
from 20 bcf to 32 bcf versus a year-earlier build of 31 bcf and
the five-year average increase for the week of 45 bcf.
HIGH PRODUCTION
Baker Hughes drilling rig data on Friday showed the
gas-directed rig count fell for the 10th time in 11 weeks this
week to a 13-year low of 498.
(Rig graphic: r.reuters.com/dyb62s)
Dry gas drilling has become largely uneconomical at current
prices, and a 47 percent drop in the gas rig count over the last
nine months has fed expectations that producers were getting
serious about slowing record output.
But drillers have moved rigs to more-profitable shale oil
and shale gas liquid plays that still produce plenty of
associated gas that ends up in the market after processing.
EIA's gross gas production report this week showed May
output was unchanged from April at 72.39 bcf per day, just shy
of January's record of 72.74 bcfd.
Traders have been looking for signs that relatively low gas
prices might finally slow record output, but production is still
at 3 bcfd, or 4.3 percent, above the same year-ago month.
MORE FUNDAMENTALS
The National Weather Service's 6 to 10-day outlook issued on
Sunday called for above-normal temperatures for about the
western half of the nation and along the East Coast, but normal
or below-normal readings were expected for the remainder of the
East.
On the nuclear front, total outages were at 6,300 megawatts,
or 6 percent of U.S. capacity, on Monday, up from 5,600 MW out
on Friday, 6,200 MW out a year ago and a five-year outage rate
of 4,300 MW.
The U.S. National Hurricane Center Tropical Storm Ernesto
was expected to pass north of the coast of Honduras on Monday.
Elsewhere tropical cyclone formation was not expected during the
next 48 hours.
The latest government statistics show the Gulf of Mexico
accounts for 6 percent of U.S. gas production and just over 20
percent of U.S. oil production.
