RTRS: US natural gas futures mixed early, front slips slightly
NEW YORK, Oct 5 (Reuters) - U.S. natural gas futures traded
mixed early on Friday, with front-month contracts pressured by
the previous day's bearish inventory report and milder mid-month
weather forecasts despite cool temperatures over the next week
that should stir demand.
Recent gains - the front contract has climbed 20 percent
over the previous eight sessions - have been backed by forecasts
for much cooler weather for the Midwest and East late this week
and next week.
But with inventories at record highs for this time of year
and production at or near an all-time peak, most fundamental
traders remain skeptical of the upside, particularly with more
moderate temperatures expected by mid-month.
"Pressure will continue to come from coal's competition with
gas for electricity generation ... and forecasts for
above-normal temps going into the fall and early-winter time
frames," EOXLive's Tom Pawlicki said in a report.
At 9:15 a.m. EDT (1315 GMT), front-month gas futures
on the New York Mercantile Exchange were down 2.6 cents at $3.38
per million British thermal units after trading between $3.376
and $3.435. Most deferred months were up slightly.
The front contract posted a 2012 high of $3.546 on Tuesday.
Private forecaster MDA EarthSat expects temperatures in the
Northeast and Midwest, key gas-consuming regions, to average
normal or below normal for the next week or so, then moderate to
seasonal or above seasonal levels by mid-October.
Competition from low-priced coal could also curb buying. As
gas prices push well above $3, they become less competitive with
coal and some utilities that were burning cheaper gas to
generate power may switch back.
Loss of that demand, which helped prop up gas prices all
summer, could force more gas into a well-supplied market.
Most analysts agree gas prices need to be well below $3 this
autumn to ensure switching demand.
Producers, too, could be tempted if prices move much higher,
opting to hook up wells that have been drilled but not flowing
because gas prices below $3 were unattractive.
BEARISH STORAGE REPORT
Data on Thursday from the U.S. Energy Information
Administration showed that domestic gas inventories rose last
week by 77 billion cubic feet to 3.653 trillion cubic feet.
Most traders viewed the build as bearish, noting it came in
well above the Reuters poll estimate of 71 bcf.
But others noted it cut the surplus relative to last year by
24 bcf to 272 bcf, or 8 percent above the same week in 2011. It
also slightly trimmed the excess versus the five-year average,
reducing that surplus by 1 bcf to 281 bcf, or 8 percent.
(Storage graphic: 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 69 percent
as record heat this summer slowed weekly storage builds.
But inventories are still at record highs for this time of
year and likely to end the stock-building season above last
year's all-time peak of 3.852 tcf.
At 86 percent full, storage is hovering at a level not
normally reached until the last week of October and still offers
a huge cushion that can help offset any weather-related spikes
in demand or supply disruptions from storms.
Early injection estimates for next week's EIA report range
from 76 bcf to 98 bcf versus a year-earlier build of 108 bcf and
the five-year average increase for the week of 84 bcf.
PRODUCTION ALSO HIGH
Traders awaited the next Baker Hughes drilling rig report
due later on Friday.
Drilling for natural gas has been in a near-steady decline
for almost a year, with the gas-directed rig count down some 54
percent since last October and posting a 13-year low last week.
But so far production shows few, if any, signs of slowing.
(Rig graphic: r.reuters.com/dyb62s )
While dry gas drilling has become largely uneconomical at
current prices, gas produced from more-profitable shale oil and
shale gas liquids wells has kept output stubbornly high.
EIA gross natural gas production data last week showed that
July output climbed 0.4 percent from June to 72.58 bcf per day,
just below January's record high of 72.74 bcfd.
