UPDATE 2-US natgas futures rise on change in weather forecast

* Colder 11-15 day noon runs drive gas prices higher midday

* Chilly near-term weather also supports market

* Record production, storage limit upside

* Coming up: Reuters natgas storage poll, EIA STEO report

(Releads, adds trader, analyst quotes, updates prices, changesbyline)

By Joe Silha

NEW YORK, Oct 9 (Reuters) - U.S. natural gas futuresreversed course and turned higher midday Tuesday after earlyselling, backed by a slightly colder turn in noon computerweather model projections.

The front-month contract, which posted a 2012 high of $3.546per million British thermal units last Tuesday, has climbed 20percent in the last two weeks as traders anticipated a pick upin demand from the season's first cold snap.

"It's all about weather, and it looks like the noon(computer) run turned a bit colder for the 11- to 15-dayforecast," a New York-based trader said.

While reports of the changed forecast drove prices up about10 cents from the lows in less than 15 minutes on good volume,some traders cautioned that models predicting out 15 days weresubject to volatile day-to-day swings and not usually reliable.

At 1:15 p.m. EDT (1715 GMT), front-month gas futures

on the New York Mercantile Exchange were up 1.9 cents at $3.422per million British thermal units after trading between $3.346and $3.456.

Despite chilly weather this week that has stirred moreheating demand, most fundamental traders remain skeptical offurther upside, with inventories at record highs for this timeof year, production at or near an all-time peak and temperaturesexpected to moderate later this month.

"We did have a little cold this week that has held upprices, but if you look at the forecast, the map shows abovenormal temperatures for the majority of the country. I don'tthink the fundamentals are there to keep prices elevated," saidJonathan Lee, an energy procurement consultant at Ecova Inc.

After a chilly week this week, AccuWeather.com expectedtemperatures in the Northeast and Midwest, key gas-consumingregions, to warm to above normal next week, with highs reachingthe high 60s and low 70s Fahrenheit.

Concerns about competition from low-priced coal may alsolimit the upside. As prices for gas pushed well above $3 overthe last two weeks, it became less competitive with coal and mayhave prompted some utilities that were burning cheaper gas forpower generation to switch back to coal.

Most analysts agree gas prices need to be well below $3 thisautumn to maintain switching demand. Loss of that demand, whichhelped prop up gas prices all summer, could force more gas intoalready-packed inventories.

There are also concerns that if gas prices move much higher,producers could opt to hook up wells that have been drilled butnot flowing because gas prices below $3 were unattractive.


U.S. Energy Information Administration data last week showedthat domestic gas inventories for the week ended Sept. 28 roseby 77 billion cubic feet to 3.653 trillion cubic feet.

(Storage graphic:)

At 86 percent full, storage is hovering at a level notnormally reached until the last week of October and offers ahuge cushion that can help offset any weather-related spikes indemand or supply disruptions from storms.

Injection estimates for Thursday's EIA report range from 76bcf to 98 bcf, with most in the low or mid 80s. Stocks rose anadjusted 108 bcf during the same week last year, while thefive-year average increase for that week is 84 bcf.

Inventories are still at record highs for this time of yearand likely to end the stock-building season above last year'sall-time peak of 3.852 tcf.


Drilling for natural gas has been in a near-steady declinefor the last year, with the gas-directed rig count down some 53percent since last October and posting a 13-year low just twoweeks ago.

But so far, production has shown few, if any, signs ofslowing.

(Rig graphic:)

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

(Additional reporting by Eileen Houlihan; Editing by MargueritaChoy)

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