UPDATE 3-Change in computer weather models firms US natgas futures

* Colder 11-15 day noon computer run drives gas prices higher

* Chilly near-term weather also lends support

* Record production, storage limit upside

* Coming up: Reuters natgas storage poll, EIA STEO report Wed

(Releads, adds meteorologist quote, nuclear outage data, updates prices)

By Joe Silha

NEW YORK, Oct 9 (Reuters) - U.S. natural gas futures reversed course and ended higher on Tuesday after early selling, backed by a colder turn in computer weather model projections released at midday.

The front-month contract, which posted a 2012 high of $3.546 per million British thermal units last Tuesday, has climbed 22 percent in a little over two weeks as traders anticipated a pick up in demand this month from the season's first cold snap.

"It's all about weather, and it looks like the noon (computer) run turned a bit colder for the 11- to 15-day forecast," a New York-based trader said.

Reports that the 11- to 15-day weather model had turned colder drove prices up about 10 cents from the lows in less than 15 minutes on good volume.

The front month powered to an intraday high late in the session and ended on a fairly strong note.

Front-month gas futures

on the New York Mercantile Exchange ended up 6.4 cents, or nearly 2 percent, at $3.467 per million British thermal units after climbing late to a high of $3.515. The $3.346 low for the day was struck in mid morning.

But some cautioned that computer weather models that attempt to predict out 15 days can be quite volatile.

"(The 11-15 day model) definitely turned colder, but we're not putting a lot of weight on this run. In that time frame, models have a tendency to change drastically," said Paul Markert, staff meteorologist at private forecaster MDA EarthSat.

Chilly weather this week that has stirred more heating demand and helped underpin prices.

Nuclear plant outages have also lent some support. The roughly 20,000 megawatts of nuclear generation mostly offline for seasonal maintenance this week have added about 600 million cubic feet, or nearly 1 percent, to daily gas demand, according to data from Thomson Reuters Analytics.

But most fundamental traders remain skeptical of further upside, with inventories at record highs for this time of year, production at or near an all-time peak and temperatures expected to moderate later this month.

MDA EarthSat's Markert said the extended forecast still shows above normal temperatures from the East Coast to the eastern Midwest and Texas though he said the area of aboves could narrow a bit. "It's possible the central Midwest could see a cooler risk heading into tomorrow."

Concerns about competition from low-priced coal may also keep buyers cautious. As prices for gas pushed well above $3 over the last two weeks, it became less competitive with coal and may have prompted some utilities that were burning cheaper gas for power generation to switch back to coal.

Most analysts agree gas prices need to be well below $3 this autumn to maintain switching demand. Loss of that demand, which helped prop up gas prices all summer, could force more gas into already-packed inventories.

There are also concerns that if gas prices move much higher, producers could opt to hook up wells that have been drilled but not flowing because gas prices below $3 were unattractive.


U.S. Energy Information Administration data last week showed that domestic gas inventories for the week ended Sept. 28 rose by 77 billion cubic feet to 3.653 trillion cubic feet.

(Storage graphic: )

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

Injection estimates for Thursday's EIA report range from 75 bcf to 98 bcf, with most in the low or mid 80s. Stocks rose an adjusted 108 bcf during the same week last year, while the five-year average increase for that week is 84 bcf.

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


Drilling for natural gas has been in a near-steady decline for the last year, with the gas-directed rig count down some 53 percent since last October and posting a 13-year low just two weeks ago.

But so far, production has shown few, if any, signs 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.

(Additional reporting by Eileen Houlihan; Editing by Marguerita Choy)

((joe.silha@thomsonreuters.com)(+1 646 223 6071)(Reuters Messaging: joe.silha.reuters.com@reuters.net))