By Joe Silha
NEW YORK, April 8 (Reuters) - U.S. natural gas futures ended
lower on Monday for the first time in three sessions, pressured
by profit-taking after the front contract climbed to a 20-month
high in overnight trade.
Gas prices have been on a tear since mid-February, spiking
nearly 30 percent as cold late-winter weather and above-average
nuclear plant outages increased demand for the fuel and helped
whittle down record high inventories hit in November.
Last week, storage dropped below the five-year average for
the first time since September 2011, a supportive sign
particularly with another draw expected this week.
Traders said upward price revisions by some prominent
industry forecasters such as Goldman Sachs have also backed some
of the recent buying.
But with seven straight weeks of gains and prices at levels
that make gas less competitive against coal for power
generation, some traders said the market may be ripe for a
Front-month gas futures on the New York Mercantile
Exchange ended down 4.3 cents, or 1 percent, at $4.082 per
million British thermal units after climbing overnight to $4.18,
the highest level since August 2011.
'Traders are taking the opportunity to take some profits
after Friday's rally,' Gelber & Associates analyst Aaron Calder
said in a report.
On Friday, front-month futures rose 4.5 percent in their
biggest one-day gain in four months. Volume at just over 792,000
contracts was the third highest ever, while futures-only open
interest posted a record high for the 15th straight session.
Chart traders said the strong growth in open interest over
the last seven weeks, up more than 25 percent as prices moved
higher, indicates that speculative traders have taken on a lot
of new length, which could leave the market vulnerable to a
sharp sell-off when longs decide to take profits.
Some were concerned that milder spring weather could trigger
that sell-off as demand slows and loosens the overall balance.
Forecaster Commodity Weather Group noted that the East Coast
outlook for this week turned warmer over the weekend, with
temperature highs climbing into the 60s and 70s Fahrenheit.
ONE MORE STORAGE DRAW EXPECTED
Inventory draws have exceeded market expectations in six of
the last seven weeks.
U.S. Energy Information Administration data Thursday showed
total domestic gas inventories fell last week to 1.687 trillion
cubic feet, 32 percent below last year's record highs at that
time and 2 percent below the five-year average.
(Storage graphic: http://link.reuters.com/mup44s)
Early withdrawal estimates for Thursday's EIA report range
from 5 to 46 bcf versus an 11-bcf build during the same week
last year and a five-year average rise for that week of 15 bcf.
That should be the season's last decline, with early
estimates for next week's report all looking for a slight build.
Stocks peaked last year in November at a record high 3.929
tcf but will end the heating season about 820 bcf below last
winter's record high finish of 2.48 tcf and 4 percent below
average for that time.
WHEN WILL OUTPUT SLOW?
Baker Hughes data on Friday showed the gas-directed
drilling rig count fell last week for the fifth time in six
weeks, dropping by 14 to a 14-year low of 375.
(Rig graphic: http://link.reuters.com/nuz86t )
Recent rig declines have raised expectations that output
might finally be poised to slow from 2012's record high.
Recent EIA data has shown that gross natural gas production
in January fell for the second straight month and dropped below
year-earlier levels for the first time since February 2010.
However, it is still unclear if those monthly output
declines were due to well freeze-offs from the cold or producers
curbing dry gas flows in favor of more liquids-rich prospects.
(Editing by Lisa Von Ahn, John Wallace, Grant McCool and Peter
Keywords: MARKETS NYMEX/NATGAS
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