UPDATE 3-US natural gas futures end up, first gain in 5 sessions

* Front futures end higher after four straight losing
sessions
* Storm Ernesto not seen as threat to Gulf gas production
* Coming up: EIA Short-Term Energy Outlook on Tuesday

(Releads, adds analyst quote, technicals, updates prices)
By Joe Silha
NEW YORK, Aug 6 (Reuters) - U.S. natural gas futures
reversed course and ended higher on Monday, their first gain in
five sessions, as technical buying after last week's steep slide
offset early selling on milder weather forecasts and fading
concerns about a Caribbean storm.
Gas prices, which hit a 7-1/2-month high of $3.277 per mmBtu
early last week, lost 10.5 percent in the previous four
sessions, as milder forecasts and bearish weekly inventory data
drove futures to their biggest four-day drop in two months.
"We came down pretty hard after the recent high. Weather
forecasts have turned bearish and there are no immediate storm
threats, but it looked like some technical support today," said
Steve Mosley at SMC Advisory Services in Arkansas.
Front-month gas futures on the New York Mercantile
Exchange ended up 3.1 cents at $2.908 per million British
thermal units after sliding early to a three-week low of $2.801.
Most traders shrugged off Tropical Storm Ernesto in the
western Caribbean, noting computer models showed the system
steering toward southern Mexico or Central America and away from
key oil- and gas-producing areas in the Gulf of Mexico.
But some noted the storm season was far from over, with the
peak of activity in late August and September still ahead.
Technical traders said the market had gotten oversold and
was due for a bounce after the steep slide late last week.
They noted the front contract overnight briefly dipped below
support at the 40-day moving average at $2.81, then rebounded
when more selling failed to materialize.
But few expected much upside in prices, with peak summer
heat likely to fade in a few weeks, and storage and production
still running at or near record highs.
"The (6-10 day) pattern looks considerably different. Some
rare belows are set to show up over the Midwest. The East Coast
should avoid a major cool-down but should level out near normal
for the period," MDA EarthSat said in its morning report.
Gas prices hit decade-lows below $2 this spring but had
rebounded by about 65 percent as record heat this summer and
increased demand from utilities switching from coal to cheaper
gas for power generation tightened the supply/demand balance.
However, as gas pushed above $3 last month, traders said
some utilities that had opted to use more of the fuel may have
moved back to coal, slowing overall usage and raising the
possibility of bigger weekly storage injections in coming weeks.
Traders were waiting for the Energy Information
Administration's Short-Term Energy Outlook report on Tuesday,
looking for the agency's latest estimates for supply and demand.

PRODUCTION HOLDS NEAR RECORD
Data from Baker Hughes on Friday showed the gas-directed rig
count fell last week by seven to 498, the 10th drop in 11 weeks
and the lowest count since late July 1999.
(Rig graphic: r.reuters.com/dyb62s )
Dry gas drilling has become largely uneconomical at current
prices, and a 47 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 that still produce plenty of
associated gas that ends up in the market after processing.
Baker Hughes also reported that horizontal rigs, the type
used to extract oil or gas from shale, rose for the first time
in four weeks, gaining four to 1,155. The horizontal count is
down just 3 percent from the record high of 1,193 set in May.
EIA gross gas production data last week showed that May
output was flat from April and down only slightly from January's
record 72.74 bcf per day. Output was still flowing at 3 bcfd, or
4.3 percent, above the same year-ago month.

STORAGE BUILD ABOVE EXPECTATIONS
Data from the EIA on Thursday showed that domestic gas
inventories for the week ended July 27 climbed to 3.217 trillion
cubic feet, still a record high for that time of year.
Widespread heat this summer has stirred demand and slowed
storage builds to below average for 14 straight weeks. That has
pulled a record inventory surplus down 47 percent from late
March highs and raised expectations that a huge overhang could
be trimmed to more manageable levels before winter.
(Storage graphic: link.reuters.com/mup44s)
But total storage stands at about 78 percent full, a level
not normally reached until mid-September. Producing-region
stocks are at 83 percent of estimated capacity.
Concerns remain that excess storage gas could drive prices
to new lows later this summer if inventories climb to levels
that would test the government's 4.1-tcf estimate of capacity.
Early injection estimates for Thursday's EIA report range
from 23 bcf to 32 bcf versus last year's build of 31 bcf and the
five-year average increase for the week of 45 bcf.

(Editing by Dale Hudson; Editing by David Gregorio)