By Joe Silha
NEW YORK, Nov 30 (Reuters) - Front-month U.S. natural gas
futures reversed course and headed lower by midday on Friday, as
concerns that mild weather next week will slow demand outweighed
early technical buying and short-covering before the weekend.
Technical traders said the front contract was due a bounce
after losing a total of 6.5 percent in three of four previous
'The market (early) was taking a break after a sharp fall
this week, but we still have extremely mild weather forecast for
the first 10 days of December,' Gelber & Associates analyst
Aaron Calder said.
The front contract, which hit a 13-month high of $3.933 on
Nov. 23, has been under pressure this week as weather forecasts
into early December trended milder. Also weighing on sentiment
was a surprise inventory build on Thursday, even as most traders
in a Reuters poll were expecting a net decline.
While nuclear plant outages are still running at about
20,000 megawatts, more than double a year ago, and could lift
demand for gas, traders said lighter power loads next week might
reduce the need for replacement generation. Gas-fired plants are
usually used to cover any lost nuclear generation.
At 11:45 a.m. EST (1645 GMT), front-month gas futures
on the New York Mercantile Exchange were down 1.9 cents at
$3.629 per million British thermal units after trading in a
narrow range between $3.616 and $3.679.
Despite the recent cold snap that helped drive Henry Hub
cash prices to 14-month highs earlier this week, traders said
demand to heat homes and businesses should slow sharply next
week as temperatures moderate.
Most traders expect any price increases to be difficult
without sustained cold to boost demand, with storage and
production still at or near record highs.
AccuWeather.com said it expected temperatures in the key
gas-consuming regions of the Northeast and Midwest to average
above to much-above normal for the next week, with highs at
times topping 60 degrees Fahrenheit (15.6 Celsius).
U.S. Energy Information Administration data on Thursday
showed domestic gas inventories had risen last week by 4 billion
cubic feet to 3.877 trillion cubic feet.
Traders viewed the build as bearish, noting a Reuters poll
was calling for a 12-bcf draw, while the five-year average for
that week was an 18-bcf decline. Only one of the 30 participants
in the Reuters poll had expected stocks to gain.
(Storage graphic: http://link.reuters.com/mup44s )
While a huge inventory overhang, which peaked in early April
at nearly 900 bcf, has been almost wiped out, storage is still
at record highs for this time of year and offers a comfortable
cushion to meet any winter spikes in demand or unexpected
disruptions in supply.
Stocks hit a record high of 3.929 tcf three weeks ago,
making this the fourth straight year in which inventories headed
into the heating season at a record peak.
Traders expect storage in next week's report to drop below
year-ago levels for the first time in 13 months, with early
withdrawal estimates ranging from 50 bcf to 90 bcf. Last year
during that week, stocks fell 14 bcf, while the five-year
average draw is 51 bcf.
PRODUCTION FAILS TO SLOW
Traders are waiting for the next drilling rig report from
Baker Hughes Inc on Friday.
Drilling for natural gas has mostly declined in the last
year, with gas rigs down 54 percent since peaking last year at
936 in October.
The gas rig count fell to a 13-1/2-year low just three weeks
ago, but so far production has shown no significant sign of
(Rig graphic: http://r.reuters.com/dyb62s)
The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept dry gas flowing this year
at or near a record pace.
(Editing by Dale Hudson, Theodore d'Afflisio and Lisa Von Ahn)
Keywords: MARKETS NYMEX/NATGAS
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