NYMEX-Natural gas ends down, EIA stock data seen neutral
Trade the News
Friday September 03, 2010 01:27:20 AM GMT
* Weekly EIA storage build in line with expectations
* Milder forecasts, no Gulf Coast storms limit buying
* Active tropics keep sellers cautious ahead of holiday
* Coming Up: Baker Hughes rig data, CFTC trade data Friday
NEW YORK, Sept 2 (Reuters) - U.S. natural gas futures ended lower on Thursday, as mild weather forecasts and a lack of storm threats to Gulf Coast output added pressure despite rising tropical activity and neutral to slightly supportive inventory data.
A U.S. Energy Information Administration report showed total domestic gas inventories climbed last week by 54 billion cubic feet to 3.106 trillion cubic feet, a level not normally reached until mid-September.
Front-month gas, which was trading at $3.75 per mmBtu just before the EIA data at 10:30 a.m. EDT (1430 GMT), eased 1.1 cents to $3.751 after trading between $3.697 and $3.844.
Winter months also finished lower, with January ending down 4.1 cents at $4.543.
"The (EIA storage) build was supportive relative to last year and the five-year average. Weekly builds have been much lower than normal, but the market has been struggling," a Midwest broker said.
The broker said the market was technically oversold and could bounce on Friday ahead of the holiday weekend if shorts cover on concerns about recent storm activity.
On Friday, Globex electronic trading for NYMEX products will end an hour early at 4:15 p.m. EDT. NYMEX floor trading will be closed on Monday for the U.S. Labor Day holiday.
Most traders said the weekly build was neutral, noting it was close to the Reuters poll estimate of 53 bcf. Some agreed it was supportive, well below the year-ago gain of 64 bcf and the five-year average increase of 62 bcf.
While Hurricane Earl and Tropical Storm Fiona were not seen as threats to Gulf Coast gas production, computer models show Tropical Depression Gaston steering in a westerly direction towards the Caribbean. It was too early to tell whether it would enter the energy-rich Gulf of Mexico.
The EIA report showed the storage deficit to a year ago grew by 10 bcf to 208 bcf, or 6 percent, while the surplus to the five-year average fell eight bcf to 169 bcf, still a 6 percent cushion to help rebuild stocks for winter.
Early injection estimates for next week's EIA report range from 45 bcf to 64 bcf, versus a 68-bcf build for the same week last year and a five-year average gain of 61 bcf.
Despite the improved storage picture -- builds have fallen short of the five-year average for 11 straight weeks as record summer heat slowed injections -- most traders remain bearish. Milder September weather lies ahead, storage is comfortable and production at its highest in nearly 40 years.
While heat-related demand is likely to fade this month as summer winds down, traders said gas demand should get a boost as relatively low prices prompt some utilities to switch from more expensive coal to gas to generate power.
Last summer, gas demand picked up as much as 3 bcf daily after a steep price drop prompted fuel switching.
AccuWeather.com expects temperatures in the Northeast and Midwest, key gas-consuming regions, to moderate to near normal or below this week or early next week, as highs slip into the 70s and low-80s Fahrenheit.
Few traders expect much upside near-term without a serious storm in the Gulf of Mexico to disrupt production.
Offshore Gulf gas output accounts for 10 percent of total U.S. production, and strong production this year has been a major roadblock to tightening the supply-demand balance.
Baker Hughes data showed the gas drilling rig count fell last week for a second straight week, but horizontal rigs -- used to extract gas from shale -- hit a record high for a fourth week, dimming prospects production would slow enough this year to rein in supplies.
The EIA's monthly gross gas production report on Monday, however, showed output in June fell for the first time since December.
Traders said low spot and forward gas prices may finally prompt producers to slow drilling as profit margins shrink.
TECHNICALS, CASH
Despite technical buying early this week, chart traders agreed the trend was still bearish. They pegged front-month resistance at $4, $4.375 and $4.60. Support was seen at the 11-month spot low of $3.62 and then at $3.50, $3.25 and $3.
The NYMEX 12-month Henry Hub strip fell 3.8 cents to $4.398. Henry Hub futures open interest on Sept. 1 rose 8,039 contracts to 824,518.
Henry Hub cash prices edged up 1 cent to $3.74, but early deals weakened to 1 cent under NYMEX from 5 cents over on Wednesday. Transco prices at the New York City gate lost 12 cents to $4.11 on the milder late-week outlook, while Chicago was 2 cents higher at $3.79. (Reporting by Joe Silha; Editing by Dale Hudson)
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