Short cover props up U.S. natgas futures, 1st gain in 4 sessions

Reuters

* Milder temperatures later in the month weigh on prices

* Cold weather expected next week limits downside

* EIA to release two weeks of gas inventory data next week

By Joe Silha

NEW YORK, Oct 18 (Reuters) - U.S. natural gas futures endedslightly higher on Friday after some early selling, driven byshort covering after three straight losing sessions and ahead ofcolder weather next week that should increase gas used forheating.

The front contract, which posted a 7.7 percent gain lastweek in its biggest one-week run up in nearly a year, ended theweek down 0.3 percent, lightly pressured by profit taking afterrecent gains and milder weather this week that curbed demand.

"We pulled back over the last couple of days, so we probablygot some short covering ahead of the weekend. The weatherforecasts for next week also look bullish and we've got two gasstorage reports next week," said Steve Mosley at The SMC Report.

The U.S. Energy Information Administration did not releaseits weekly natural gas storage report on Thursday due to thegovernment shutdown, which ended on Wednesday. The agency plansto release inventory data for the weeks ended Oct. 11 and Oct.18 on Tuesday and Thursday, respectively.

Front-month gas futures on the New York MercantileExchange ended up 0.7 cents at $3.764 per million Britishthermal units, after trading between $3.685 and $3.785. Thenearby contract hit a four-month high of $3.869 Wednesday.

Traders noted prices were pressured early today by concernsthat a cold snap expected next week could be short-lived.

Commodity Weather Group noted colder changes for theMidwest, South and East next week, with some below freezingtemperatures expected for the Midwest and lows in the 30sFahrenheit for some East Coast cities. But the forecaster alsoexpects warmer adjustments late in the 11-to-15-day outlook.

With winter fast approaching, some traders said prices couldstill move up if the early cold sticks around.

But others remain skeptical of the upside, notinginventories have already climbed to comfortable levels andproduction was still flowing at or near a record high.

Traders and analysts polled by Reuters expect an increase of80 billion cubic feet when the EIA on Tuesday releases weeklyinventory data for the week ended Oct. 11. That would be wellabove the 54 bcf build in the same week last year and thefive-year average increase for that week of 75 bcf.

Last week's report showed total U.S. gas stockpiles stood at3.577 trillion cubic feet, 3.7 percent below the year-earlierrecord highs but 1.6 percent above the norm for that week.

Stocks data for the week ended Oct. 18 will be issued onThursday at the normal time of 10:30 a.m. Early injectionestimates for that report range from 75 bcf to 88 bcf, aboveboth the 64 bcf build posted last year at that time and thefive-year average gain for that week of 67 bcf.

Baker Hughes data on Friday showed the gas drillingrig count rose this week for the second time in three weeks,increasing by three to 372.

The count has risen in 10 of the last 17 weeks, stirringtalk that new pipelines and processing plants may be encouragingproducers to pump more gas into an already well-supplied market.

The EIA last week also raised its estimate for domestic gasproduction in 2013, expecting average output this year to post arecord high for the third straight year.

In the ICE cash market, gas for weekend delivery at HenryHub , the benchmark supply point in Louisiana,slipped 3 cents to $3.72, but late Hub differentials were littlechanged from Thursday at about flat with NYMEX.

Quotes on Transco pipeline at the New York citygate slid 31 cents to $3.49 ahead of typicallylighter weekend demand. Chicago was 2 centslower at $3.85.

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