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UPDATE 5-U.S. natgas ends above $6 after hitting five-year high

Jeanine Prezioso
Wednesday, 19 Feb 2014 | 5:24 PM ET

* More winter weather expected for large parts of United States

* Storage seen down by 200-plus Bcf for fourth straight week

(Recasts lead, adds comment, cash gas and power prices) NEW YORK, Feb 19 (Reuters) - U.S. natural gas futures sprinted past $6 on Wednesday to their highest price in more than five years, ending up nearly 11 percent on forecasts that more late winter cold weather across the United States will increase heating demand and deplete increasingly thin supplies. Futures jumped ahead of Thursday's government inventory report that is expected to show a record fourth straight weekly drop in excess of 200 billion cubic feet of gas. "We've pushed beyond ($6) today in this very, very large move up," said BNP Paribas analyst Teri Viswanath. "This is scarcity pricing." "These shortage concerns are causing a realignment of the March contract with spot-market reality," Viswanath said. "It just shows how tight the supply situation currently is." Natural gas futures for March delivery settled up 59.8 cents at $6.149 per million British thermal units, after jumping as much as 72.4 cents, or 13 percent, to $6.275 per MmBtu, the highest since December 2008. As prices rose early in the day, traders bought futures contracts to cover short positions and speculative money poured into the market, further advancing the rally, brokers and analysts said. "This test of $6.00 stinks of speculative involvement," Aaron Calder, senior market analyst with Gelber & Associates in Houston, said in a client note. "Managed money is taking advantage of the imbalance and pouring into the long side of the trade." Weather forecasters expect frigid temperatures to continue after record-cold weather in January led to steep draws of natural gas to meet heating demand, leaving less gas to meet summer electric power demand. The 11- to 15-day forecast points to "ongoing colder than normal conditions" over much of North America, said meteorologists at MDA Weather Services in Gaithersburg, Maryland. Temperatures in Chicago will reach sub-zero (Fahrenheit/below minus 18 degrees Celsius) at the end of next week while New York temperatures will reach into the teens, according to the MDA forecast. The March contract on the New York Mercantile Exchange settled at $1.20 over April, widening the spread between the two from 80 cents a day earlier. "The rally is confined to March, but as time goes by the seriously depleted storage level is going to catch on," said Gene McGillian, analyst with Tradition Energy in Stamford, Connecticut. "The back of the board has some catching up to do."

Storage levels are expected to drop to a low of 890 billion cubic feet (bcf) at the end of March, and "we do not see a full recovery over the summer," said Thomson Reuters natural gas analyst Jan Schulte. Analysts polled by Reuters expect the U.S. Energy Information Administration (EIA) to report a drawdown of 251 Bcf with a range of 212 Bcf to 270 Bcf. The relative strength index, or RSI-14, of natural gas futures hit 70 on Wednesday, indicating that it may be overbought. RSI is a technical indicator closely watched by traders. Technical analysts generally regard a level of 30 as a sign that a commodity has been oversold and is ready for a rise, while a RSI of 70 indicates prices may be too high and set to fall. At the end of January, RSI twice rose above 70. In the cash market, gas at the Henry Hub <GT-HH-IDX>, the benchmark supply point in Louisiana, rose 22 cents to $5.96 per MmBtu on average, a 19-cent discount to NYMEX. Gas prices for Thursday delivery on the Transco Zone 6 pipeline <E-TSCO6NY-IDX> in New York traded 10 cents higher at $6.15 per MmBtu on average on the IntercontinentalExchange. Cash prices for gas were generally higher across the country, particularly in the West. For daily ICE U.S. cash gas prices click on <0#GAS-IDX=ICE>. Power prices were steady to lower as demand weakened due to milder weather. PJM West power <E-PJWHRTP-IX> in the Mid-Atlantic fell nearly $3 to an average of $46 per megawatt-hour on ICE. However, New England power <E-NEPLMHP-IDX> rose $4 to $125 per MWh. Power prices in the West and Texas were little-changed from the previous day. For daily ICE U.S. cash gas prices click on <0#POWER-IDX=ICE>. Nuclear plant outages, which create demand for natural gas as a substitute fuel, were at 9,655 megawatts, up from 9,570 MW on Tuesday. That compares with 16,100 MW a year ago and a five-year average outage rate of 10,300 MW.

(Additional reporting by Eileen O'Grady in Houston; Editing by Marguerita Choy, Bernadette Baum and Paul Simao)