US natural gas rig count up 8 to 759 this week

NEW YORK Dec 31 (Reuters) - The number of rigs drilling for natural gas in the United States rose by eight this week to 759, according to a report on Friday by oil services firm Baker Hughes in Houston.

The U.S. natural gas drilling rig count has rebounded after bottoming at 665 on July 17, its lowest level since May 2002, but is still down sharply since peaking above 1,600 in September 2008.

This week's drilling rig count stands at 508 below the same week last year.

Many gas producers had scaled back drilling operations earlier this year with credit tight and natural gas cash prices sinking this summer to $2.50 per million British thermal units (mmBtu), a 7-1/2 year low and down some 80 percent from July 2008 highs above $13.

But gas prices have been on a steady uptrend for the last three months, rallying some 25 percent this month alone to more than $5.50 as a steady stream of cold air kicked up demand.

Some traders say prices are now high enough to encourage more onshore drilling, noting nearly all shale gas production is profitable near that level.

While drilling has dropped over the past year or so, traders noted production has not slowed much, with recent government data showing gross September gas output in the lower 48 states down 2.2 percent from August but up more than 11 percent from year-earlier levels when two Gulf of Mexico storms crippled output.

Many traders agreed more rig cuts may be necessary to balance the market, with gas inventories still at record highs for this time of year and demand, particularly from the industrial sector, down sharply due to a lackluster economy. (Reporting by Edward McAllister; editing by Jim Marshall)