UPDATE 3-US natural gas futures end down ahead of holiday weekend
* Front month hits highest mark since early September 2011 * Forecasts for second week of April turn milder * Nuclear outages slip below last year, five-year levels By Joe Silha NEW YORK, March 28 (Reuters) - Front-month U.S. natural gas futures, shrugging off a supportive weekly inventory report, ended lower on Thursday, with the milder turn in the extended weather outlook prompting some longs to liquidate ahead of a three-day holiday weekend. The U.S. Energy Information Administration report showed total domestic gas inventories fell last week by 95 billion cubic feet to 1.781 trillion cubic feet. Most traders viewed the decline as supportive for prices, noting stocks usually build slightly that week and the draw came in well above the Reuters poll estimate of 87 bcf. "The (EIA) number was higher than expected but not that bullish. I think longs were looking at the weather models, which showed a possible warm up in the 11-to-15-day forecast, and decided to liquidate ahead of the long weekend," said Steve Mosley at The SMC Report in Arkansas. NYMEX floor and electronic trading will be closed for the Good Friday holiday. Front-month gas futures on the New York Mercantile Exchange ended down 4.4 cents at $4.024 per million British thermal units after climbing overnight to a fresh 19-month high of $4.121. The front contract, which notched its sixth straight weekly gain with a 2.5 percent rise this week, ended the first quarter up about 20 percent. The contract finished the month of March about 15 percent higher. Cold late-season weather has put a huge dent in inventories and helped drive futures prices up nearly 30 percent since mid-February. Above-average nuclear outages have also increased demand for gas-fired replacement power though downed units late this week finally slipped below the five-year norm. Many traders remained skeptical of further upside, with winter winding down and production still flowing at or near a record peak. They noted that gas prices over $4 could curb demand by prompting utilities to use coal rather than gas to generate power and increase supply by encouraging producers to turn on more wells. While MDA Weather Services still saw plenty of cold in its six-to-10-day outlook, the forecaster expected temperatures to turn milder during the 11-to-15-day time frame, with above-normal readings stretching from Texas to Mid-Atlantic states. STRONG STORAGE DRAW FAILS TO STIR PRICES Futures tried to rally after the weekly inventory report but quickly stalled, then headed lower amid signs that winter might finally be drawing to a close. The weekly inventory withdrawal sharply increased the deficit relative to last year by 140 bcf to 642 bcf, or 26 percent below last year's record highs for that time. It also sliced 101 bcf from the surplus versus the five-year average, leaving stocks just 61 bcf, or 3.5 percent, over that benchmark. Most traders expect stocks to fall below the five-year norm in next week's EIA report, with early draw estimates ranging from 45 to 97 bcf versus a 43-bcf build in the same week last year and a five-year average increase for that week of 4 bcf. Stocks will likely end the heating season near the 1.73-tcf average for March 31, or 30 percent below last winter's record high finish of 2.48 tcf. A Reuters poll in mid-January put the consensus end-winter inventory forecast at about 2 tcf. GAS DRILLING RIGS DIVE TO 14-YEAR LOW Baker Hughes data Thursday showed the gas-directed rig count fell this week for the fourth time in five weeks, dropping by 29 to 389, its lowest since May 1999. But despite the slowdown in dry gas drilling, production has not slowed much, if at all, from the record high posted last year.