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UPDATE 2-US gas futures slip, longs take profits before weekend

Friday, 12 Oct 2012 | 12:35 AM ET

* Pre-weekend profit taking pressures prices

* Mild outlook for next week also weighs on sentiment

* Light weekly inventory build Thursday seen as bullish

* Record production, storage also keep buyers cautious

* Coming up: Baker Hughes rig data, CFTC trade data Friday

(Releads, changes byline, adds analyst quote, updates prices)

By Joe Silha

NEW YORK, Oct 12 (Reuters) - U.S. natural gas futures lost ground on Friday after four straight days of gains, lightly pressured by forecasts for fairly mild U.S. weather next week and some profit taking following the front-month's climb to a fresh 2012 high in overnight trade.

An unexpectedly light weekly inventory build and some cool weather this week helped drive the nearby contract up nearly 4 percent on Thursday.

Nuclear plant outages, roughly averaging about 20,000 megawatts this week, helped underpin prices as they added as much as 600 million cubic feet, or nearly 1 percent, to daily gas demand, according to data from Thomson Reuters Analytics.

But many fundamental traders expect further upside to be difficult, with inventories at record highs for this time of year and production at or near an all-time peak, particularly with demand likely to slow next week as milder weather returns.

"I think we're seeing profit taking today, it does look like the weather warms up a little next week. But these price levels also may be affecting demand and giving bulls some pause," said Kyle Cooper, managing partner at IAF Advisors in Houston.

At about 12:15 p.m. EDT (1615 GMT), front-month gas futures

on the New York Mercantile Exchange were down 3.1 cents, or near 1 percent, at $3.573 per million British thermal units after climbing early to a new 2012 high of $3.638.

The nearby contract had gained 6.1 percent in the previous four sessions on the cold this week that stirred heating demand.

Some traders agree that the recent spike in gas prices to 10-month highs could prompt producers to turn on more wells and make gas less competitive with lower-priced coal for a share of the power generation market.

Any let up in coal-to-gas switching, which helped prop up gas prices all summer, could force more gas into already-packed inventories.

After a chilly week in the Northeast and Midwest, key gas-consuming regions, private forecaster MDA EarthSat expects temperatures in both regions to mostly range from normal to above normal for the next two weeks.

LIGHT STORAGE BUILD

U.S. Energy Information Administration data on Thursday showed domestic gas inventories rose last week by 72 billion cubic feet to 3.725 trillion cubic feet,

Traders and analysts viewed the build as bullish, noting it was well below the Reuters poll estimate of 80 bcf, the year-ago injection of 108 bcf and the five-year average increase for that week of 84 bcf.

While the injection cut the surplus relative to last year and the five-year average, inventories are still at record highs for this time of year and are likely to end the stock-building season above last year's all-time high of 3.852 tcf.

(Storage graphic: )

Storage, now at 88 percent full, is at a level that exceeds the average peak for the year of about 3.7 tcf typically hit in early November. Without more unseasonably cold weather this month, stocks are likely to grow for four or five more weeks.

Early injection estimates for next week's EIA report range from 30 bcf to 58 bcf versus a year-earlier build of 106 bcf and the five-year average increase for the week of 71 bcf.

HIGH PRODUCTION

Traders were waiting for the next Baker Hughes drilling rig report on Friday.

Drilling for natural gas has been in a near-steady decline for the last year, with the gas-directed rig count down some 53 percent since last October and posting a 13-year low just two weeks ago. But so far, production has shown few, if any, signs of slowing.

(Rig graphic: )

While dry gas drilling has become largely uneconomical at current prices, gas produced from more-profitable shale oil and shale gas liquids wells has kept output near record highs.

In its October short-term energy outlook on Wednesday, EIA still expects marketed natural gas production in 2012 to be up about 4 percent from 2011's record levels, with a smaller 0.5 percent gain predicted in 2013.

(Additional reporting by Eileen Houlihan; Editing by Bob Burgdorfer)

((joe.silha@thomsonreuters.com)(+1 646 223 6071)(Reuters Messaging: joe.silha.reuters.com@reuters.net))

Keywords: MARKETS NYMEX/NATGAS

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