Cold temps prop up U.S. natgas futures but milder weather looms

Reuters

NEW YORK, Oct 25 (Reuters) - U.S. natural gas futures,backed by cold weather for the next few days, edged higher forthe third time this week on Friday, but a milder outlook forlater next week and into early November helped limit the upside.

The front-month contract, which was down 2.9 percent so farthis week, has been struggling, with investors torn between thenear-term cold shot that has kicked up heating demand and themilder outlook into early November that should slow usage.

After a few more days of below-normal temperatures in theMidwest and East, readings were expected to trend milder andstay that way into early November.

Some traders had doubts about the potential upside forprices at least until more winter-like weather was sustained,noting inventories have climbed to comfortable levels andproduction was still flowing at or near a record-high pace.

At 8:55 a.m. EDT (1255 GMT), front-month November gasfutures on the New York Mercantile Exchange, which expireon Tuesday, were up 2.5 cents at $3.654 per million Britishthermal units, after trading between $3.593 and $3.664.

The front contract slid on Thursday to a two-week low of$3.545 after a bearish weekly inventory report, then bouncedback and settled up a penny.

Chart watchers noted the nearby contract has slipped intothe $3.50s several times this week, only to be propped up bybuying, marking that area as decent technical support.

MDA Weather Services expected chilly temperatures todominate the eastern half of the nation for the next five days,with below-normal readings stretching from the northern Plainsto the Southeast. But the forecaster noted the six-to-15-dayoutlook continued to trend warmer, particularly for the Midwest.

Many traders viewed Thursday's 87 billion cubic feet weeklyinventory build as bearish, noting it came in above the Reuterspoll estimate of 79 bcf and well above last year's increase of64 bcf and the five-year average gain for that week of 67 bcf.

U.S. Energy Information Administration data showed totaldomestic gas inventories last week stood at 3.741 trillion cubicfeet, 2.4 percent below last year's record highs at that time,but 2.1 percent above the five-year average.

The storage outlook for next week was more supportive. Earlyinjection estimates ranged from 20 bcf to 43 bcf. That would bewell below the 66 bcf build seen during the same year-ago weekand the five-year average increase of 57 bcf for that week.

Traders awaited the next Baker Hughes Inc drillingrig report on Friday. The gas rig count has increased in 10 ofthe last 17 weeks, stirring talk that new pipelines andprocessing plants may be encouraging producers to pump more gasinto an already well-supplied market.

The EIA still expects U.S. gas production in 2013 to hit arecord high for the third straight year.

Nuclear plant outages on Friday totaled 17,382 megawatts, orabout 18 percent of U.S. capacity. That was up from Thursday'stotal of 17,187 MW, but below the 27,569 MW out one year ago andthe five-year average outage rate of 22,068 MW.

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