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US natural gas futures edge up on pre-weekend short covering

US natural gas futures on Friday edged up as some traders covered shorts ahead of the weekend despite warmer-than-normal forecasts for the next two weeks. Front-month gas futures rose 1.2 cents, or 0.4 percent, to settle at $3.285 per million British thermal units. "The gas market has recovered from weaker overnight levels on what looks like some light-volume short covering ahead of the weekend on the off chance that the temperature outlook could turn cooler," Tim Evans, Citi Futures' energy futures specialist, said in a note.

For the week, the front-month lost about 12 percent, its biggest weekly decline since January 2016, due to moderating weather forecasts. The latest forecasts called for the weather to turn warmer-than-normal for the rest of January after a brief cold spell expected to last through Monday.

Thomson Reuters estimated the cold expected over the next few days boosted US gas demand to 101.2 billion cubic feet per day (bcfd) this week and 111.7 bcfd next week from an average of 90.9 bcfd last week. Analysts forecast utilities pulled 139 billion cubic feet of gas from storage during the warmer-than-normal week ended January 6, the smallest draw for that week since 2012. That compares with declines of 49 bcf in the prior week, 152 bcf a year earlier and a five-year average draw of 168 bcf for the week.

If the forecasts are correct, it would be the second week in a row withdrawals were below both year-ago and five-year averages due to warmer-than-normal weather and weaker demand for gas from the power sector. The power sector was consuming less of the fuel because the cost of next-day gas at the Henry Hub benchmark in Louisiana was more than 60 percent higher now than the same time last year, making coal a cheaper fuel for many generators to burn to produce electricity.

The power sector was expected to burn an average of 18.2 bcfd this week versus 25 bcfd during the same week last year, according to Reuters data. Despite the small expected draw, analysts estimated the amount of gas in storage would decline more quickly than normal this winter in part because drillers were producing less of the fuel than in recent years US output averaged 70.8 bcfd over the past 30 days, compared with 72.6 bcfd a year earlier and 72.2 bcfd for the same period in 2015, according to Reuters data.

Over the past week, however, production edged up to an average of 71.0 bcfd, with prices in the Marcellus and Utica shale basins in Pennsylvania, Ohio and West Virginia holding near two-year highs.