* Milder extended weather outlook pressures prices
* Comfortable stockpiles, record production also weigh (Adds analyst quote, updates futures and cash prices)
By Joe Silha
NEW YORK, Oct 28 U.S. natural gas futures shrugged off bullish inventory expectations for this week and ended sharply lower on Monday, reacting to mild weather forecasts that should allow homeowners and businesses to turn down their heaters.
The front-month contract lost 1.5 percent last week amid expectations that milder weather settling across the eastern half of the nation could continue into early or mid-November.
"Versus Friday, the forecasts showed a pretty dramatic increase in temperatures for the first week of November," said Kyle Cooper, managing partner at IAF Advisors in Houston.
November gas futures on the New York Mercantile Exchange, which expire on Tuesday, ended down 13.8 cents, or 3.7 percent, at $3.569 per million British thermal units after trading between $3.557 and $3.681.
Chart watchers noted the nearby contract has slipped into the $3.50s several times over the last week or so, only to be propped up by buying, marking that area as decent technical support. A close below $3.50 would be considered bearish.
Despite the cold shot last week that could lead to the first below-average storage build in six weeks, many traders remained skeptical of the upside without more sustained cold, noting inventories have climbed to comfortable levels and production was still flowing at or near a record-high pace.
Commodity Weather Group noted that the outlook for the next two weeks was expected to be variable, with both cool and warm pushes across the United States. But the private forecaster did say warmer changes should continue to outpace cooler ones.
U.S. Energy Information Administration data last week showed total domestic gas inventories at 3.741 trillion cubic feet, 2.4 percent below last year's record highs at that time, but 2.1 percent above the five-year average.
The storage outlook for Thursday was more supportive. Early injection estimates ranged from 26 billion to 40 billion cubic feet. That would be well below the 66 bcf build seen during the same year-ago week and the five-year average increase for that week of 57 bcf.
Baker Hughes data on Friday showed the gas drilling rig count rose last week for the third time in four weeks, increasing by four to 376.
The count has risen in 11 of the last 18 weeks, stirring talk that new pipelines and processing plants may be encouraging producers to pump more gas into an already well-supplied market.
The EIA still expects U.S. gas production in 2013 to hit a record high for the third straight year.
In the ICE cash market, gas for Tuesday delivery at Henry Hub GT-HH-IDX, the benchmark supply point in Louisiana, fell 6 cents to $3.62, but late Hub differentials firmed to 5 cents over NYMEX from a 1-cent premium on Friday.
Gas on the Transco pipeline at the New York citygate E-TSCO6NY-IDX lost 7 cents to $3.77 on the mild Tuesday outlook, while Chicago MC-CHICIT-IDX was 8 cents lower at $3.83. (Editing by Alden Bentley, Jim Marshall, Bob Burgdorfer and James Dalgleish)