* Front month still well below recent 7-1/2-month high
* Warm weather on tap for consuming regions
* Stir in tropical activity also supports prices
* Coming Up: EIA natgas storage data Thursday
(Adds cash prices, updates futures prices)
By Eileen Houlihan
NEW YORK, Aug 23 (Reuters) – U.S. natural gas futures
seesawed on either side of unchanged early Thursday, with most
traders expecting prices to resume a march higher amid warm
weather in consuming regions, a stir in tropical activity and
expectations for a light weekly inventory build.
Tropical Storm Isaac was moving westward through the eastern
Caribbean Sea on Thursday, with some forecast tracks still
showing the storm heading into the Gulf of Mexico. But it was
still too soon for most to say whether the storm, expected to
become a hurricane on Friday, would disrupt offshore U.S. energy
operations in the Gulf.
Tropical Depression Ten was west of the Cape Verde Islands
in the Atlantic, while a tropical wave off the coast of Africa
had about a 10 percent chance to develop further in the next 48
hours.
Most traders and analysts expect weekly storage data from
the U.S. Energy Information Administration to show a build of
about 38 billion cubic feet when it is released today at about
10:30 a.m. EDT (1430 GMT), a Reuters poll showed.
Stocks rose an adjusted 66 bcf in the same week last year
and on average over the past five years have gained 53 bcf that
week.
Strong nuclear power plant outages were also helping to
support prices, but most expect futures to have a hard time
breaking back above $3 per million British thermal units, the
level where gas loses much of its appeal over coal for power
generation.
As of 9:33 a.m. EDT (1333 GMT), front-month September
natural gas futures on the New York Mercantile Exchange
were at $2.816 per mmBtu, down 1 cent.
The nearby contract peaked at $3.277 in late July, its
highest mark since December.
In the cash market, gas bound for the NYMEX delivery point
Henry Hub in Louisiana was heard up 2 cents early at
$2.82 on light volume near 285 million cubic feet. Early deals
also firmed to even with the front month, from a 4-cent discount
late Wednesday.
Gas on the Transco pipeline at the New York citygate
was heard up 6 cents at $2.94 on volume near 181
mmcf.
The National Weather Service’s six- to 10-day outlook issued
on Wednesday again called for above-normal temperatures across
much of the nation, with below-normal readings only on the West
Coast.
On the nuclear front, total outages were about 8,300
megawatts, or 8 percent of U.S. capacity, on Thursday, up from
about 7,800 MW out on Wednesday and a five-year average outage
rate of about 5,800 MW, but even with 8,300 MW out a year ago.
STORAGE BLOATED DESPITE LIGHT BUILDS
Last week’s EIA gas storage report showed total domestic
inventories had risen in the previous week by 20 billion cubic
feet to 3.261 trillion cubic feet.
The build came in below the year-ago and five-year average
increase for that week of 43 bcf, a 16th straight week the
injection had fallen short of seasonal norms.
But at 442 bcf or 16 percent above the same week in 2011,
storage is still at record highs for this time of year, standing
at 79 percent full, a level not normally reached until the third
week of September.
(Storage graphic: http://link.reuters.com/mup44s)
Concerns remain that the storage overhang could drive prices
to new lows later this summer if inventories climb to levels
that test the government’s 4.1-tcf estimate of capacity.
HIGH PRODUCTION
Baker Hughes drilling rig data last week showed the
gas-directed rig count fell for the 12th time in 13 weeks to a
13-year low of 484.
(Rig graphic: http://r.reuters.com/dyb62s)
Dry gas drilling has become largely uneconomical at current
prices, and a 48 percent drop in the gas rig count over the last
nine months has fed expectations that producers were getting
serious about slowing record output.
But drillers have moved rigs to more-profitable shale oil
and shale gas liquid plays, which produce plenty of associated
gas that ends up in the market after processing.
Traders have been looking for signs that relatively low gas
prices might finally slow record output, but production is still
at 3 bcfd, or 4.3 percent, above the same year-ago month.
(Reporting by Eileen Houlihan; Editing by Marguerita Choy and
Sofina Mirza-Reid)
