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U.S. natgas futures edge higher ahead of weekly storage data

Thursday, 11 Oct 2012 | 9:33 AM ET

* Front month just below last week's 2012 high

* Nuclear power plant outages still high

* Mild weather on tap for most of the country

* Coming up: EIA gas, oil data later Thursday

By Eileen Houlihan

NEW YORK, Oct 11 (Reuters) - U.S. natural gas futures edged higher early on Thursday as near-term cool weather and continuing nuclear power plant outages kept demand strong ahead of a weekly inventory report.

Most traders and analysts expect data from the U.S. Energy Information Administration to show an inventory build of about 80 billion cubic feet when the figures are released Thursday at 10:30 a.m. EDT (1430 GMT), a Reuters poll showed.

Stocks rose an adjusted 108 bcf in the same week last year and have gained, on average, 84 bcf in that week over the past five years

But milder weather on tap for later in the month and for at least the start of winter was expected to limit further gains.

In addition, many traders remain concerned that gas priced well above $3 per million British thermal units will continue to lose market share to coal for power generation.

As of 9:22 a.m. (1322 GMT), front-month November natural gas futures on the New York Mercantile Exchange

were at $3.519 per mmBtu, up 4.4 cents, or about 1 percent. The contract rose as high as $3.546 just over a week ago, its highest level since December.

The National Weather Service six- to 10-day outlook issued on Wednesday called for above-normal temperatures for nearly the entire nation, with normal or below-normal readings only in the Northwest.

On the nuclear front, outages totaled about 19,200 megawatts, or 19 percent of U.S. capacity, down slightly from 20,000 MW on Wednesday, 22,700 MW a year ago and the five-year average outage rate of 19,700 MW.

STORAGE BUILDS GROW

Last week's EIA gas storage report showed domestic gas inventories rose the previous week by 77 bcf to 3.653 trillion cubic feet.

Storage stands 8 percent above the same week in 2011 and 8 percent above the five-year average level.

(Storage graphic: )

Inventories are still at record highs for this time of year and are likely to end the stock-building season above last year's all-time high of 3.852 tcf.

At 86 percent full, storage is hovering at a level not normally reached until the last week of October, offering a huge cushion that can help offset any weather-related spikes in demand or supply disruptions from storms.

HIGH PRODUCTION

Baker Hughes data last week showed the gas-directed rig count rose by two to 437 after sliding to another 13-year low the prior week.

It was the second gain in three weeks, but only the eighth time this year that the gas rig count has risen. The count is still down 53 percent since peaking at 936 last October.

Drilling for natural gas has been in a near-steady decline for the last year, but so far production has shown no significant sign of slowing.

(Rig graphic: )

While dry gas drilling has become largely uneconomical at current prices, gas produced from more profitable shale oil and shale gas liquids wells has kept output near record highs.

(Editing by John Wallace)

((eileen.houlihan@thomsonreuters.com, Twitter @eileenreuters)(+1 646 223-6074)(Reuters Messaging: eileen.houlihan.reuters.com@reuters.net))

Keywords: MARKETS NYMEX/NATGAS