NEW YORK, Dec 5 (Reuters) - Front-month U.S. natural gas
futures, shrugging off mild weather this week that has slowed
demand, edged higher early Wednesday as forecasts for next week
shifted slightly cooler, particularly for the Midwest.
Prices have seesawed this week with changes in computer
weather predictions, but few traders expect much upside without
more sustained cold to boost heating demand, noting inventories
were still at record highs for this time of year and production
was flowing at or near an all-time peak.
At 9:35 a.m. EST (1435 GMT), front-month gas futures
on the New York Mercantile Exchange were up 5.9 cents, or 1.7
percent, at $3.598 per million Btu after trading in a range of
$3.507 to $3.619. The nearby contract hit a 13-month high of
$3.933 on Nov. 23.
AccuWeather.com expects temperatures in the Northeast and
Midwest, key gas-consuming regions, to mostly average above
normal for the next week. Cooler conditions are forecast for
next week, particularly in the Midwest.
While technical traders said the market was oversold and due
for a bounce - the front contract slid nearly 9 percent last
week - most agreed it would take a close above the 40-day moving
average in the $3.62 area to point prices higher.
Some traders caution that if gas prices take another run at
$4, that could increase supply by encouraging producers to turn
on more wells and dampen demand by making gas less competitive
with coal for power generation.
INVENTORIES HOVER NEAR RECORD HIGHS
Data last week from the U.S. Energy Information
Administration showed domestic gas inventories for the week
ended Nov. 23 rose by 4 billion cubic feet to 3.877 trillion
While a huge inventory surplus relative to a year ago -
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.
(Storage graphic: http://link.reuters.com/mup44s )
Traders expect inventories in Thursday's EIA report to drop
below year-ago levels for the first time in 13 months.
Withdrawal estimates range from 51 bcf to 74 bcf, with most
in the mid-60s. Stocks fell 14 bcf during the same week last
year. The five-year average for that week is a 51 bcf decline.
Storage hit an all-time high of 3.929 tcf in early November.
This is the fourth straight year that gas inventories have
headed into the heating season at a record peak.
PRODUCTION SHOWS NO SIGNS OF SLOWING
Drilling for natural gas has mostly been in decline for the
last year, with gas rigs down nearly 55 percent since peaking
last year at 936 in October.
(Rig graphic: http://r.reuters.com/dyb62s)
The steep slide - the Baker Hughes gas rig count is hovering
just above a 13-1/2-year low - has stirred expectations that
producers might curb record output, but so far production has
not shown any significant signs of slowing.
The associated gas produced from shale oil and shale gas
liquids wells has kept dry gas flowing at or near a record pace.
EIA data on Friday showed gross natural gas production in
September rose to a record high of 73.05 billion cubic feet per
day, eclipsing the previous record of 72.74 bcfd set in January.
(Reporting By Joe Silha; editing by Sofina Mirza-Reid)
Keywords: MARKETS NYMEX/NATGAS
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