* Cool weather seen next week after brief warming
* Record-high storage, production weigh on sentiment
* Nuclear power plant outages stay high, limit downside
(New throughout, updates prices, market activity, adds comment
from analyst, Baker Hughes rig data, power outage data)
By Joe Silha
NEW YORK, Nov 9 U.S. natural gas futures ended
lower on Friday, as milder weather settled into the Northeast
and Midwest and slowed overall heating demand though another
shot of cold was expected later next week.
Traders noted that nuclear plant outages this week remained
well above last year and the five-year average, limiting the
downside in gas prices as chilly temperatures forced homeowners
and businesses to crank up the heat. Gas-fired power plants are
typically used to replace lost nuclear generation.
But with gas inventories at all-time highs and production
flowing at or near a record peak, traders said prices would stay
under pressure without sustained cold weather to boost demand.
"We have temperatures warming up, and traders are looking at
the record amount of gas in storage. I think the market will
probably trade in a range between $3.40 and $3.70 (per mmBtu),
waiting to see when we'll get some real solid demand," said
Jonathan Lee at Ecova Inc. in Washington.
Front-month gas futures on the New York Mercantile
Exchange ended down 10.5 cents, or near 3 percent, at $3.503 per
million British thermal units after trading between $3.482 and
$3.617. The nearby contract, which hit a one-year intraday high
of $3.82 early last week, ended this week down 1.4 percent.
Technical traders agreed the market may be stuck in a range,
but some said a front month settlement below $3.50 could drive
prices lower. They noted Friday's dip to $3.484 closed the roll
gap left after the November contract expiration in late October.
After a fairly chilly week, AccuWeather.com expected
temperatures in the Northeast and Midwest, key gas-consuming
regions, to average above normal for the next few days as
daytime highs range from the high-50s to mid-60s Fahrenheit,
levels that should curb heating needs.
Readings in both regions were expected to cool by midweek
Some traders also say if gas prices move much higher, toward
$4, that could increase supply by encouraging producers to hook
up more wells and dampen demand by making gas less competitive
with coal for power generation.
RIGS DROP TO NEW LOW, PRODUCTION FAILS TO SLOW
Baker Hughes data on Friday showed the gas-directed rig
count fell this week by 11 to 413, the third drop in the last
five weeks and the lowest since early June 1999.
Drilling for natural gas has been in decline for most of the
last year, with gas rigs falling some 56 percent since peaking
at 936 in October 2011. The steep slide has fed expectations
that producers might soon curb record output, but so far
production has not shown any significant signs of slowing.
(Rig graphic: r.reuters.com/dyb62s )
The associated gas produced from more-profitable shale oil
and shale gas liquids wells has kept dry gas flowing at or near
a record pace. New pipeline capacity scheduled in some
bottlenecked shale plays later this year could prompt producers
to hook up more wells and add even more gas to supply.
In its November short-term energy outlook on Tuesday, the
Energy Information Administration said it expected marketed gas
production in 2013 to match 2012's record high estimated at
68.84 billion cubic feet per day.
INVENTORIES HIT NEW HIGHS
Data from the EIA on Thursday showed gas inventories rose
last week by 21 bcf to a record of 3.929 trillion cubic feet.
Most traders viewed the build as slightly supportive, noting
it came in well below the Reuters poll estimate of 27 bcf. Some,
however, noted that inventories were at all-time highs and could
climb further in next week's report.
Traders said this week's inventory report was difficult to
peg, with Hurricane Sandy knocking out power last week to nearly
8.5 million East Coast customers and cutting demand for gas used
to generate electricity by up to 1 bcf per day.
There were still more than 400,000 U.S. homes and businesses
without power on Friday from combined damages due to Wednesday's
nor'easter and Sandy.
(Storage graphic: link.reuters.com/mup44s )
While a huge inventory overhang, which peaked in late March
at nearly 900 bcf, has been cut by 88 percent, storage is 93
percent full and will provide a comfortable cushion to meet any
winter spikes in demand or unexpected disruptions in supply.
Early estimates for next week's EIA storage report range
from a build of 15 bcf to a draw of 5 bcf. Last year during that
week, stocks rose 20 bcf, while the five-year average is 17 bcf.
(Reporting By Joe Silha; editing by Sofina Mirza-Reid; and