Natural gas futures pare losses on inventories data

Natural gas trimmed its weekly decline on Thursday after the Energy Information Administration reported U.S. gas inventories rose less than expected last week, indicating robust demand prior to the peak of the winter heating season. Outlook for colder-than-usual weather in key U.S. consuming areas in the second half of November continued to support the market.

On the New York Mercantile Exchange, natural gas futures for settlement in December traded at $3.525 per million British thermal units at 15:55 GMT, down 1.16% on the day. Prices rebounded from a one-week low of $3.492 minutes after the release of the stockpiles data, while days high stood at $3.567 per mBtu. The energy source lost 2.5% on Wednesday, the most since November 3, and was down 0.8% on weekly basis on Thursday.

Futures recovered some of their earlier losses after a government report showed U.S. natural gas inventories rose less than projected last week, but the rebound was moderate as the gain was still above the average. Stockpiles added 20 billion cubic feet in the week ended November 11, above the five-year average build of 19 billion and last years 12 billion increase during the comparable week. Inventories were expected to surge by 22 billion cubic feet according to the median estimate of 18 analysts surveyed by Bloomberg.

Total gas held in underground U.S. storage hubs now equaled 3.834 trillion cubic feet, 2% below last years 3.914 trillion during the comparable period. The surplus over the five-year average total amount of gas remained unchanged at 1.5%.

According to EIAs report, inventories in the East Region received a net injection of 10 billion cubic feet to 1.984 trillion and were 4.5% below the five-year average of 2.077 trillion. Stockpiles at the West Region fell by 2 billion cubic feet to 553 billion and exceeded the five-year average reading of 514 billion by 7.6%. Inventories in the Producing Region rose by 12 billion cubic feet to 1.297 trillion and were 9.5% higher than the average of 1.185 trillion.

The energy source was also pressured after the Energy Information Administration reported today that U.S. output may jump to 70.29 billion cubic feet per day in 2013, 0.4% above the previous month’s estimate of 70 billion. If confirmed, current year’s production will be 1.6% above 2012′s record high of 69.18 billion cubic feet per day.

The steadily increasing U.S. output has risen to record high levels in the past months as technologies such as fracking provided a cheaper way to drill into shale rock and extract fuel. The EIA said the Marcellus shale has been the main driver of growth.

Natural gas was pressured recently after updated weather forecasting models called for moderating temperatures in key U.S. consuming areas in the short-term, but forecasts called for cold weather to return afterward. MDA Weather Services in Gaithersburg, Maryland, reported that readings from the eastern U.S. through the Midwest will be below-average between November 19 and November 28, stoking demand for the power-station fuel. According to AccuWeather Inc., temperatures in New York on November 27 may bottom at 27 degrees Fahrenheit, 11 below usual, while the low in Chicago may be 17 degrees Fahrenheit, 12 below average.

When cold weather is expected, natural gas surges as increased electricity demand to power air-conditioning calls for more supply of the fuel, which is used for a quarter of U.S. electricity generation. Consumption usually picks up from November through March. According to the Energy Information Administration, power generation accounts for 32% of U.S. gas demand and 49% of U.S. households use the energy source for heating.

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