CNBC: Natural gas futures edge up for 2nd day, all eyes on storage
NEW YORK (Reuters) - U.S. natural gas futures edged higher for a second straight day on Tuesday, driven by expectations for another light weekly inventory build despite moderating U.S. weather forecasts that should slow demand for air conditioning.
"The bullish case for natural gas is supported by the outlook for Thursday's (Department of Energy) storage report," Citi Futures Perspective analyst Tim Evans said in a report.
Evans said lingering production losses last week from Hurricane Isaac and strong air conditioning demand likely slowed injections.
At 9:15 a.m. EDT (1315 GMT), front-month gas futures on the New York Mercantile Exchange were up 11.2 cents, or 4 percent, at $2.924 per million British thermal units after climbing earlier to a one-month high of $2.939.
The front contract on Monday rallied 4.8 percent in its biggest one-day gain in six weeks. The buying was mostly technical, with prices rebounding after closing lower in the three prior sessions and losing 4 percent last week.
Traders shrugged off reports about a low pressure system in the central Atlantic Ocean, with early computer tracks showing it steering north, not toward the United States.
But traders were still keeping a close eye on the tropics, noting the peak of the storm season occurs in September.
With inventories still at record highs for this time of year and production flowing at or near an all-time peak, most traders remain skeptical of the upside, particularly with summer heat finally starting to fade.
In its 6-10 day and 11-15 day outlooks, private forecaster MDA EarthSat expects temperatures for most of the eastern two-thirds of the nation to average normal or below normal.
In addition, most analysts agree that gas prices need to stay between $2.50 and $3 heading into autumn in order to encourage utilities to burn gas rather than coal to generate power.
A loss of utility demand could lead to larger weekly storage builds and renew concerns about inventories testing total capacity before winter.
LIGHT STORAGE BUILD COMING
Injection estimates for Thursday's Energy Information Administration report range from 22 billion to 55 billion cubic feet, with most in the low-30s. Stocks rose an adjusted 80 bcf during the same week last year, while the five-year average increase for that week is 72 bcf.
Traders noted that Gulf of Mexico production shut-ins last week from Hurricane Isaac totaled more than 11 bcf.
EIA data last week showed that gas inventories for the week ended August 31 climbed to 3.402 trillion cubic feet, still a record high for this time of year.
(Storage graphic: http://link.reuters.com/mup44s)
A huge inventory surplus, which peaked in late March at nearly 900 bcf above a year earlier, has been cut by 55 percent as record heat this summer slowed weekly builds.
But at 83 percent full, stocks are at levels not normally reached until the first week of October, and offer a huge cushion that can help offset any weather-related spikes in demand or Gulf Coast supply disruptions from storms.
With summer heat winding down, concerns remain that the storage overhang could drive prices to new lows this autumn if inventories test the government's 4.1 tcf estimate of capacity.
RIGS DECLINE, PRODUCTION REMAINS HIGH
While the Baker Hughes gas drilling rig count has fallen in 14 of the last 16 weeks to a 13-year low, traders say there is little evidence so far that gas output is slowing.
(Rig graphic: http://r.reuters.com/dyb62s )
Dry gas drilling may be largely uneconomical at current prices, but the associated gas produced from more profitable shale oil and shale gas liquids wells is likely to keep gas production at a record high for a second straight year.
Traders were waiting for EIA'S Short-term Energy Outlook on Tuesday, with updated forecasts on supply, demand and storage.
Domestic gas production in 2012 has been running about 3 billion cubic feet per day, 4 percent more than last year's record high.
