RTRS: US natural gas slips early with crude, mild weather
* Front month still above January's 10-year low
* Mild weather on tap for consuming regions
* U.S. crude futures also lower in early trade
* Coming Up: API oil data Tuesday, EIA oil data Wednesday
NEW YORK, Feb 28 (Reuters) - U.S. natural gas futures
slid early Tuesday, with the new front month contract off about
5 cents with weaker crude futures and ongoing concerns over a
very mild winter weather that has left inventories bloated.
New front month April natural gas futures on the New York
Mercantile Exchange were at $2.552 per million British
thermal units in early U.S. activity, down 5.1 cents.
The March contract went off the board Monday down 10.4
cents, or about 4 percent, at $2.446.
The front month fell in late January to $2.231, a contract
low and the lowest price for a front month since March 2002,
forcing some producers to announce production cuts.
STORAGE STILL A BIG PROBLEM FOR PRICES
Last week's gas storage report from the U.S. Energy
Information Administration showed total domestic inventories
fell by 166 billion cubic feet to 2.595 trillion cubic feet -
still at record highs for this time of year, and 753 bcf, or 41
percent, above last year and 744 bcf, or 40 percent, above the
five-year average level.
(Graphic: link.reuters.com/mup44s)
Despite the bigger-than-expected draw last week and some
price gains this month, one of the mildest winters on record has
slowed storage draws by about 510 bcf, or 29 percent, and left a
huge cushion in inventories that could cap any more gains this
year.
Last winter at this time, cold weather had forced storage
owners to pull more than 2 tcf from inventory to help meet the
surge in heating demand, but this season, only about 1.3 tcf of
storage gas has been burned up, a 37 percent drop.
With extended forecasts still not showing any extreme cold
on the horizon and winter winding down, traders said the huge
surplus could pressure prices in late March if contractual
obligations force utilities to cycle gas out of inventory to
meet seasonal turnover requirements.
Early withdrawal estimates for this week's EIA report range
from 80 bcf to 100 bcf versus last year's drop of 85 bcf and the
five-year average decline for that week of 118 bcf.
A Reuters end-winter poll issued recently showed analysts
expect stocks to end the heating season at an all-time high of
2.215 tcf, 43 percent above average and well above the previous
record of 2.148 tcf set in 1983.
The inventory glut could also spell trouble for prices late
in the summer stock-building season if inventory owners run out
of room to store gas, forcing more supply into the market.
Estimates for U.S. working gas storage capacity range from
4.1 tcf to 4.4 tcf, a level that could be tested if storage
builds from April through October match last year's 2.2 tcf.
MORE FUNDAMENTALS
Temperatures in key gas-consuming cities were seen in the
mid-40s to the mid-50s Fahrenheit in New York and mostly the 40s
F in Chicago for the next several days, according to the Weather
Channel's weather.com.
The National Weather Service six- to 10-day outlook issued
on Monday called for above-normal readings for about the eastern
two-thirds of the nation, and normal or below-normal readings in
the West.
Nearly 17,600 megawatts, or 18 percent, of the nation's
nuclear capacity was offline on Tuesday, up from about 8,900 MW
out at this time last year and a five-year average outage rate
of about 11,300 MW for this week.
Baker Hughes data last week showed the gas-directed rig
count fell by six to 710, its lowest mark since October 2009. It
was the seventh straight weekly decline and stirred more talk
that low prices were finally forcing drillers to slow dry gas
operations.
(Graphic: r.reuters.com/dyb62s)
But many traders remain skeptical of announced production
cuts, noting the planned reductions so far were not enough to
tighten a market oversupplied by as much as 3 bcf per day, or
more than 4 percent.
Analysts said the recent slowdown in drilling has yet to be
reflected in pipeline flows. They noted that producers have
shifted spending to higher-value oil and gas liquids plays which
still produce plenty of associated gas that ends up in the
market after processing.
Most analysts, noting it will be difficult to balance the
gas market without serious production cuts, do not expect any
major slowdown in gas output until late this year.
