RTRS: US natgas futures down early, front hits 10-year low
* Front month sinks early to lowest since February 2002
* Mild late-week forecasts, record supplies weigh on prices
* Coming up: API oil inventory data Tuesday
NEW YORK, March 27 (Reuters) - U.S. natural gas futures got
thrown on the defensive early Tuesday as mild weather forecasts
for the Northeast and Midwest and record high supplies drove the
front-month contract to a 10-year low despite recent signs that
the market may be tightening.
While a cool start to the week did stir some late season
heating demand, traders said gas prices have been struggling
with production running at or near all-time highs, inventories
still at a record high for this time of year and early spring
temperatures mostly slowing overall demand.
At 8:50 a.m. EDT (1250 GMT), front-month April gas futures
on the New York Mercantile Exchange, which expire on
Wednesday, was down 4.4 cents, or 2 percent, at $2.182 per
million British thermal units. It sank early to $2.176 which
marked the lowest for the nearby contract since February 2002.
Record supplies and a mild March have helped drive the
front-month contract down 16 percent so far this month, with
more downside possible unless weather demand picks up.
While high gas production, primarily from shale, has put
pressure on prices this year, recent steep declines in gas
drilling have stirred expectations that low prices would finally
force producers to slow record output.
Several producers have announced output cuts, but traders
said the reductions were not nearly enough to soak up much of
the excess supply, particularly with inventories set to start
the stock-building season at a record and likely to test storage
capacity limits later this summer.
After some cool early-week weather, AccuWeather.com expects
temperatures in the Northeast and Midwest, key gas-consuming
regions, to mostly average above normal for the next 10 days, ,
with daytime highs frequently topping 60 degrees Fahrenheit
(15.6 Celsius).
RECORD PRODUCTION
Gas prices last week again failed to react to Baker Hughes
data showing the gas-directed rig count fell for the 11th
straight week to 652, its lowest level since May 2002 when there
were 640 rigs operating.
(Rig graphic: r.reuters.com/dyb62s)
But despite the steady decline in gas drilling, the slowdown
has yet to be reflected in pipeline flows, which are still
estimated to be at or near record high levels.
The U.S. Energy Information Administration on Thursday will
issue its gross natural gas production report for January after
reporting a slight drop for December late last month.
Some analysts say the gas-directed rig count may have to
drop below 600 to reduce flowing supplies significantly, noting
the producer's shift to higher-value oil and gas liquids plays
still produces plenty of associated gas that partly offsets any
reductions in pure dry gas output.
Most analysts do not expect any major slowdown in gas output
until later this year.
INVENTORY GLUT
U.S. Energy Information Administration data last week showed
total gas inventories rose by 11 billion cubic feet to 2.380
trillion cubic feet, still a record high for this time.
The build was slightly above market expectations and came
about two weeks earlier than usual. It was the first time in
five years that storage registered a gain for that week.
The inventory surplus, now more than 50 percent above the
five-year average, should provide a huge cushion to meet any
spikes in demand or storm-related disruptions in supply this
year. (Storage graphic: link.reuters.com/mup44s)
Storage is likely to finish the month at an all-time high of
about 2.45 tcf, more than 55 percent above normal and easily
beating the previous March 31 record of 2.148 tcf set in 1983.
Early injection estimates for Thursday's EIA report range
from 20 bcf to 58 bcf versus last year's adjusted build of 7 bcf
and the five-year average decline for that week of 8 bcf.
Traders said the huge storage overhang could drive prices
lower this spring as seasonal weather demand fades, then
pressure prices again late in the April-through-October
stock-building season if storage caverns fill to capacity and
force more supply into a well-supplied market.
While cheap gas has slightly tightened the supply-demand
balance this year as manufacturers use more of the fuel and
utilities switch to gas from pricier coal to generate power,
most analysts agree it will be very difficult for prices to move
higher until production shows concrete signs of slowing.
Prices as of 8:57 a.m. EDT in $/mmBtu:
LAST NET PCT LOW HIGH CURRENT DAY AGO
CHNG CHNG VOL VOL
NGc1 2.189 -0.037 -1.7% 2.176 2.238 11,156 102,967
NGc2 2.279 -0.040 -1.7% 2.2650 2.329 17,430 74,630
CLc1 107.09 0.06 0.1% 106.67 107.44 33,324 260,269
CLc2 107.57 0.02 0.0% 107.18 107.94 6,921 59,973
