By Joe Silha
NEW YORK, May 6 (Reuters) - U.S. natural gas futures lost
ground on Monday, pressured by milder weather this week that
should slow demand despite the cooler temperature outlook next
week for the Midwest and South.
Gas prices saw a huge 40 percent run up from mid-February as
cold late-winter weather, a chilly spring and above-average
nuclear plant outages whittled down record high inventories at
the start of the heating season.
While there are still below normal temperatures in the
forecast, traders noted normal highs are on the rise as summer
approaches and below normal readings in May are not likely to
trigger much heating or cooling load.
'I think the market is just pulling back after the run up,
but there are some concerns that storage (inventory) builds are
starting to get bigger,' a Texas-based producer said.
At 12:45 p.m. EDT (1645 GMT), front-month gas futures
on the New York Mercantile Exchange were down 3.9 cents, or 1
percent, at $4.002 per million British thermal units after
sliding early to a one-month low of $3.971.
The front contract, which just hit a 21-month high of $4.444
on Wednesday, lost 2.7 percent last week, its second straight
weekly decline after nine consecutive weeks of gains.
Last Thursday's unexpectedly-large inventory build triggered
a 7-percent selloff, the biggest one-day drop for the front
contract in nine months.
Traders said the report may be a sign that the market was
loosening, noting prices above $4 could be dampening demand by
encouraging utilities to use more coal to generate power and
increasing supply by tempting producers to turn on more wells.
With gas production still flowing at or near record highs
and moderating weather likely to slow demand, some traders
expect gas prices to remain under pressure, at least until
homeowners and businesses crank up air conditioners.
Chart traders said futures have been struggling, noting
prices broke above $4.40 several times over the last two weeks
only to be turned back by technical selling or profit-taking.
But they also noted decent buying when the front broke below
psychological support at $4 twice in the last two sessions.
The latest National Weather Service eight-to-14-day
forecast, issued on Sunday, called for above-normal temperatures
for the western half of the nation and the Northeast, with
below-normal readings in Texas and normal readings in much of
the Midwest and Southeast.
ANOTHER BIG INVENTORY BUILD EXPECTED
Last week's build was only the third injection of the stock
building season, but it did exceed market expectations and
prices fell sharply immediately after the report.
(Storage graphic: http://link.reuters.com/mup44s)
U.S. Energy Information Administration data last week showed
total domestic gas inventories had climbed to 1.777 trillion
cubic feet, about 118 billion cubic feet, or 6 percent, below
the five-year average.
That deficit is likely to shrink in Thursday's report, with
early injection estimates ranging from 58 to 91 bcf versus a
30-bcf build during the same week last year and a five-year
average rise for that week of 69 bcf.
PRODUCTION CLIMBS DESPITE FEWER RIGS
Baker Hughes data Friday showed the gas-directed rig
count fell last week to an 18-year low of 353.
(Rig graphic: http://link.reuters.com/nuz86t )
Drilling for natural gas has mostly been in decline for the
past 18 months, dropping some 62 percent since peaking in 2011
at 936, but so far production has not slowed much, if at all,
from the record high hit last year.
The EIA reported last week that gross gas production in
February unexpectedly climbed after two straight monthly
declines. The agency expects marketed gas output in 2013 to hit
a record high for the third straight year.
(Additional reporting by Eileen Houlihan; Editing by John
Wallace and Chris Reese)
Keywords: MARKETS NYMEX/NATGAS
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