* Front month hits highest mark since early December 2011
* Cool Northeast, Midwest forecasts back recent gains
* Concerns grow that gas becoming less competitive with coal
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By Joe Silha
NEW YORK, Oct 1 (Reuters) - U.S. natural gas futures ended higher on Monday for the fifth straight day, with Northeast and Midwest forecasts calling for cool weather for later this week and next week driving the front contract to a new high for the year.
But despite prospects for early heating load, many traders and analysts remained skeptical of the upside with storage and production still at or near record highs.
Competition from low-priced coal could also curb some of the buying enthusiasm. As gas prices push well above $3 per mmBtu gas could become less competitive with coal in the power generation market.
Concerns are growing that some utilities that have been burning cheaper gas to generate power could switch back to coal. Loss of that demand, which helped prop up gas prices all summer, could force more gas into a well-supplied market.
Producers, too, could be drawn in if prices move much higher, opting to hook up wells that have been drilled but not flowing because gas prices below $3 were not very attractive.
"The onset of heating demand and lack of storage (capacity) concerns have fueled the rally we've seen the past 10 days. But it seems that traders have forgotten that (storage is) still extremely full at the moment and low coal prices could reverse the fuel switching that has boosted natural gas demand," Gelber & Associates analyst Aaron Calder said in a report.
Front-month gas futures
on the New York Mercantile Exchange ended up 16 cents, or 4.8 percent, at $3.48 per million British thermal units after climbing late to a new 2012 high of $3.485.
The front month is up 22.7 percent in the last five sessions, its biggest five-day gain in about three years. Traders noted a big part of the increase occurred last Wednesday, when November took over front position with a 20-cent premium to the expiring October contract.
Chart traders said the front month was overbought and due for a pullback, noting the 14-day relative strength index climbed above 83 percent today, its highest in 17 months.
Strong buying on Monday focused mainly on the nearby contract narrowed the January premium to November, with the spread slipping 3.6 cents, or 8 percent, to 41.1 cents. That spread settled at 34.6 cents three weeks ago.
After a mild start to the week, AccuWeather.com expects temperatures in the Northeast and Midwest, key gas consuming regions, to cool to below normal, with overnight lows at times slipping to the high 30s and 40s Fahrenheit range.
RIGS DECLINE, PRODUCTION STILL HIGH
Baker Hughes data on Friday showed that the gas-directed rig count slid by 19 last week to a new 13-year low of 435.
The nearly steady decline in gas-directed drilling over the last year - the count is down 54 percent from its 2011 peak of 936 in October - has raised expectations that producers were finally set to slow record output.
But so far, production shows 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 stubbornly high.
Energy Information Administration gross natural gas production data on Friday showed that July output climbed 0.4 percent from June to 72.58 billion cubic feet per day, just below January's record high of 72.74 bcfd.
STORAGE BUILDS PICK UP, STOCKS STILL AT RECORD
Data last week from EIA showed that total gas inventories for the week ended Sept. 21 rose by 80 bcf to 3.576 trillion cubic feet, a record high for this time of year. It was the biggest weekly injection so far in 2012.
(Storage graphic: )
While record heat this summer trimmed a huge storage surplus relative to last year by 67 percent from its late-March high, storage builds in autumn are likely to pick up as weather loads fade.
At 84 percent full, total stocks are hovering at a level not normally reached until the third week of October and still offers a huge cushion that can help offset any weather-related spikes in demand or supply disruptions from storms.
Early injection estimates for Thursday's EIA report range from 55 bcf to 75 bcf versus a year-earlier build of 101 bcf and the five-year average increase for the week of 78 bcf.
Gas inventories are still likely to end the stock-building season above last year's all-time high of 3.852 tcf.
(Additional reporting by Eileen Houlihan; Editing by Bob Burgdorfer and Tim Dobbyn)
Keywords: MARKETS NYMEX/NATGAS