UPDATE 3-U.S. natural gas futures end up, EIA data supports
* Weather outlook turns milder, limits upside * Aggregate inventories remain high, weigh on sentiment * Coming up: Baker Hughes rig data, CFTC trade data Friday By Joe Silha NEW YORK, Feb 28 (Reuters) - Front-month U.S. natural gas futures ended higher on Thursday, underpinned by a government report showing a weekly inventory withdrawal above market expectations. The U.S. Energy Information Administration report showed total domestic gas inventories fell last week by 171 billion cubic feet to 2.229 trillion cubic feet. Most traders viewed the decline as slightly supportive for prices, noting it was the second straight week that the draw came in above expectations. A Reuters poll on Wednesday showed traders and analysts had forecast a 167 bcf drop. Front-month gas futures on the New York Mercantile Exchange ended up 5.2 cents, or 1.5 percent, at $3.486 per million British thermal units after climbing to an intraday high of $3.508 after the EIA report. The near contract is up 5.9 percent so far this week following a 4.4 percent increase last week. For the month of February, the front month managed a 4.4 percent gain, the first monthly increase since October when prices rose 11.2 percent. Cold forecasts helped drive the front contract higher over the last two weeks, but the market also garnered support from utilities switching from coal to cheaper gas to generate power and from above-average nuclear plant outages that have prompted more gas burn. Gas-fired units are typically used to offset any shut nuclear generation. The moderating trend in weather forecasts at midweek stirred concerns that late-winter demand will slow and limit potential upside in prices, particularly with inventories still high and production flowing at or near a record peak. "We don't think there is much further running room to the upside as a short bout of late season weather is unlikely to materially impact end of season (storage) balances," Mike Tran at CIBC World Markets said in a report. "Aggregate storage levels are some 16 percent above norms and the weather outlook for the reporting week ahead looks much more moderate and in line with seasonal averages," Tran added. MDA Weather Services, a private forecaster, noted that the six-to-10-day and 11-to-15-day outlooks turned a bit warmer overnight though another shot of cold air was expected to hit the Midwest late in the period. ABOVE-AVERAGE STORAGE DRAW Traders said the weekly stock decline came in well above the 106 bcf pull seen during the same week last year and the five-year average drop for that week of 118 bcf. The draw sharply widened the deficit relative to last year by 65 bcf to 307 bcf, or 12 percent below last year's record highs for that time. It also sliced 53 bcf from the surplus versus the five-year average, but storage is still relatively high at 308 bcf, or 16 percent, above that benchmark. Early withdrawal estimates for next week's inventory report range from 120 bcf to 160 bcf. Stocks fell an adjusted 92 bcf during the same week in 2012, while the five-year average decline for that week is 107 bcf. Most analysts expect storage to end the heating season at about 2 tcf, or 16 percent above average but 19 percent below last winter's record-high finish of 2.48 tcf. OUTPUT STARTS TO SLOW? EIA data on Thursday showed that gross natural gas output in December fell 1.1 percent from November's record high, the first time in four months that production failed to notch a new peak. The Baker Hughes gas-directed rig count, hovering just above a 13-1/2-year low of 413 hit in early November, has stirred expectations that record gas output would finally slow. But it's still unclear if the decline in December was due mostly to the cold or producers finally curbing dry gas flows. The EIA estimates that marketed gas output in 2013 will hit a record high for the third straight year.