* Chilly near-term weather, nuclear outages lend support
* Mild outlook for next week keeps buyers cautious
* Record production, storage also limit upside
* Coming up: EIA, Enerdata natural gas storage data Thursday
(Releads, adds analyst quote, technical data, updates prices)
By Joe Silha
NEW YORK, Oct 10 (Reuters) - Front-month U.S. natural gasfutures ended higher on Wednesday for a third straight day, withchilly U.S. weather this week stirring demand, but milderNortheast and Midwest weather forecasts for next week helpedlimit the upside.
The front-month contract, which posted a 2012 high of $3.546per million British thermal units early last week, has climbed22 percent in a little over two weeks as traders anticipated apickup in demand this week from the season's first cold snap.
But despite recent gains, most fundamental traders remainskeptical of the upside. Inventories are at record highs forthis time of year, production is at or near an all-time peak andmilder temperatures are expected to soon slow overall demand.
"I think we're seeing a lot of defensive buying (or hedging)by end users before winter, and there's been a lot of freshbuying from speculators, but we're looking for a pullback,"Gelber & Associates analyst Aaron Calder said, adding heexpected milder weather to pressure prices.
Front-month gas futures
on the New York MercantileExchange ended up 0.8 cent at $3.475 after trading between$3.431 and $3.514. Spring and summer months fell slightly.
Government data last week showed that speculative traderssharply increased their net long positions. It was their firstgain in net length in 10 weeks.
Technical traders said the market seemed stuck in a range,with upside momentum stalling. They noted gains this week havebeen modest, with the front contract unable to break last week'sto a new 2012 high and rising just 2.3 percent.
Nuclear plant outages have lent some support to prices. Theroughly 20,000 megawatts of nuclear generation offline formaintenance this week have added about 600 million cubic feet,or nearly 1 percent, to daily gas demand, according to data fromThomson Reuters Analytics.
But concerns have been growing that, if gas prices move muchhigher, producers could opt to hook up wells that have beendrilled but are not flowing because gas prices below $3 wereunattractive.
Competition from low-priced coal may also be weighing onsentiment. As gas prices push well above $3, they become lesscompetitive with coal and could prompt some utilities that wereburning cheaper gas for power generation to switch back.
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.
STORAGE BUILDS PICK UP
Traders and analysts were waiting for the next U.S. EnergyInformation Administration storage report on Thursday, with mostexpecting stocks to have gained 80 billion cubic feet last week,according to a Reuters poll on Wednesday.
Stocks rose an adjusted 108 bcf during the same week lastyear. The five-year average increase for that week is 84 bcf.
EIA data last week showed that domestic gas inventories forthe week ended Sept. 28 climbed to 3.653 trillion cubic feet,still a record high for that time of year.
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.
Inventories are still expected to end the stock-buildingseason above last year's all-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.
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.
In its October short-term energy outlook on Wednesday, EIAstill expects marketed natural gas production in 2012 to be upabout 4 percent from 2011's record levels, with a smaller 0.5percent gain predicted in 2013.
On the demand side, the agency expects total consumption toclimb 4.7 percent this year but slip 0.2 percent in 2013 asexpected declines in electric power use offset increases fromresidential, commercial and industrial users.
(Reporting by Joe Silha; Editing by Dale Hudson, Jim Marshalland Leslie Gevirtz)
Keywords: MARKETS NYMEX/NATGAS