Tue May 1, 2012 9:45am EDT
* Front month well above recent 10-year spot low * Milder spring weather on tap for much of nation * U.S. crude futures edge lower in early trade * Coming Up: API oil data Tuesday, EIA oil data Wednesday (Adds cash prices, updates throughout) By Eileen Houlihan NEW YORK, May 1 (Reuters) - U.S. natural gas futures roseslightly in early trade Tuesday, extending April's biggestmonthly gain in 13 months, as recent talk of supply cuts byproducers and strong cash prices outweighed mild spring weatherand concerns over record-high inventories. Many traders said the market may have bottomed out aftersinking to a 10-year spot chart low two weeks ago before endingApril up 7.5 percent, the largest monthly rise for the nearbycontract since March 2011. Front-month June natural gas futures on the New YorkMercantile Exchange were at $2.296 per million Britishthermal units in early trade, up 1.1 cents, after slidingrecently to $1.902, the lowest level for a front month sinceJanuary 2002. In the cash market, gas bound for the NYMEX delivery pointHenry Hub NG-W-HH in Louisiana was heard early at $2.28 onvolume near 516 million cubic feet, up 18 cents from Monday'saverage of $2.10. Early Hub cash deals were also done at just a 1-centdiscount to the front month contract, firming from deals donelate Monday at about a 12-cent discount. Gas on the Transco pipeline at the New York City gateNG-NYCZ6 was heard early near $2.52 on volume near 318 mmcf,also up 18 cents from Monday's $2.34 average. STORAGE STILL A HUGE WEIGHT ON PRICES Last week's gas storage report from the U.S. EnergyInformation Administration showed total domestic gas inventoriesrose by 47 billion cubic feet to 2.548 trillion. But the report also showed an 11 bcf downward revision inthe previous week's inventory data, most of which occurred inthe producing region. Traders said the revision was a supportive surprise, butnoted that inventories still remain at record highs for thistime of year, standing 52 percent above last year's levels andmore than 55 percent above the five-year average level. (Storage graphic:
link.reuters.com/mup44s) Concerns still persist that the inventory glut will driveprices lower this spring as seasonal weather demand fades andagain pressures prices this summer as storage caverns fill upand force more gas into an over-supplied market. If weekly stock builds through October match the five-yearaverage, inventories would top out at 4.583 tcf, or 12 percentover peak capacity estimates of about 4.1 tcf. Early injection estimates for this week's EIA report rangefrom 25 bcf to 45 bcf versus last year's adjusted build of 60bcf and the five-year average increase for that week of 79 bcf. PRODUCTION ALSO NEAR RECORD HIGHS The EIA's short-term energy outlook this month also offeredlittle hope for bulls, with the agency sharply raising itsestimate for marketed gas production this year for a thirdstraight month. But the gas-directed rig count fell last week to the lowestlevel in 10 years, sliding 18 to 613, as low prices continue toforce producers to slow dry gas operations. (Rig graphic:
r.reuters.com/dyb62s) In addition, the EIA on Monday said gas production inFebruary fell from January's record high, stirring expectationsthat the oversupplied market might finally tighten. Royal Dutch Shell's CFO last week said the company would beswitching the bulk of its gas drilling program in the UnitedStates toward the production of "wet" natural gas and away from"dry" natural gas. As a result, Shell's natural gas productionis expected to be lower year-on-year in 2012, but higher in2013. Also last week, Encana, Canada's largest gas producer,raised expectations about more gas supply cuts. Chesapeake and Conoco have also announced production cuts thisyear. MORE FUNDAMENTALS The National Weather Service's six- to 10-day outlook issuedon Monday called for above-normal readings in the Southeast andNorthwest, below-normal readings in the Southwest and mostlynormal readings for the remainder of the nation. Spring nuclear power plant outages were running at about23,900 megawatts, or 24 percent, on Tuesday, down from about32,600 MW out a year ago but above the five-year outage rate ofabout 23,000 MW.
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