(Adds detail on EIA storage report, analyst reaction, updates prices)
NEW YORK Jan 3 (Reuters) - U.S. natural gas futures rose on Friday, shrugging off a smaller than expected drop in stockpiles last week as winter heating demand continued to offer momentum.
Natural gas stocks fell by 97 billion cubic feet during the week ending Dec. 27, according to the Energy Information Administration, smaller than the 126 draw forecast in a Reuters poll.
The fall was smaller than the 126 bcf drop during the same week in 2012 and the five-year average of 121 bcf.
But continuing winter weather helped bolster futures, which rebounded into the positive by midday.
At 11:51 a.m. EST (1651 GMT) front-month February gas futures on the New York Mercantile Exchange, rose 3.9 cents, or 1 percent, to $4.361 per million British thermal units, rebounding from losses earlier of more than 2 percent.
"The weather forecast for the latter half of January doesn't look supportive, and we could see some more pressure, but I don't think the market is going to get aggressively short with this much winter left," said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.
In the ICE cash market, prices for weekend delivery at Henry Hub GT-HH-IDX, the benchmark supply point in Louisiana, rose 8 cents to $4.41, with late trade differentials strengthening to 5 cents over NYMEX, from less than a 1 cent premium on Thursday.
Gas on the Transco pipeline at the New York citygate E-TSCO6NY-IDX dropped $21.93 to $9.19 as a demand constraints caused by the forecast for cold weekend weather eased.
(For daily ICE U.S. cash gas prices, click <0#GAS-IDX=ICE>)
Private forecaster MDA Weather Services called for cold, stormy weather to continue in the 1- to 5-day range, but moderate temperatures are expected in the 6- to 10-day range, followed by strong warmth in the East in the 11- to 15-day forecast.
Sub-zero temperatures accompanied a snow storm that has made its way through much of the Midwest and the Northeast in the second half of the week, causing some pipelines to reach capacity. Gas on the Transco pipeline at the New York citygate E-TSCO6NY-IDX was up $15.72 to $31.12 on Thursday.
Chilly early winter weather drove the front month contract up to finish last year with a 27 percent gain, making it the biggest gaining commodity of the year. The contract posted a 2-1/2-year high of $4.532 per million British thermal units on Dec. 23.
Last Friday's storage report from the U.S. Energy Information Administration showed total gas inventories fell the week ending Dec. 20 by 177 billion cubic feet to 3.071 trillion cubic feet. The report was delayed one day last week by the Christmas holiday.
Nuclear plant outages on Friday totaled 1,540 megawatts, or about 2 percent of U.S. capacity. That was down from Thursday's total of 1,600 MW, and well below the 7,500 MW out a year ago and the five-year average outage rate of 4,750 MW. (Reporting by Julia Edwards; Editing by Bernadette Baum, Meredith Mazzilli, Chris Reese and Nick Zieminski)