* Mild mid-month weather seen slowing demand
* Big storage build on Thursday called bearish
* Record production, storage keep buyers cautious
* Cool near-term forecast helps limit downside
(Releads, adds analyst quote, Baker Hughes rig data, updates prices)
By Joe Silha
NEW YORK, Oct 5 (Reuters) - U.S. natural gas futures ended lower in the front-month November contract pressured by Thursday's bearish weekly inventory report and by forecasts for mild mid-month weather that should slow demand.
Traders said near-term forecasts for much cooler weather for the Midwest and East late this week and next week helped limit selling.
"I think November pulled back today because the storage number (EIA build) came in above expectations, and the extended weather forecasts look like the back half of October will be trending mild," said Steve Mosley at SMC Advisory Services.
Front-month gas futures
on the New York Mercantile Exchange, the day's only loser, ended down 1 cent at $3.396 per million British thermal units after trading between $3.337 and $3.435. Deferred months finished higher.
The front contract, which posted a 2012 high of $3.546 on Tuesday, had climbed about 20 percent over the previous eight sessions.
But record high inventories for this time of year and production at or near an all-time peak have most fundamental traders skeptical of the upside, particularly with more moderate temperatures expected by mid-month.
Private forecaster MDA EarthSat expects temperatures in the Northeast and Midwest, key gas-consuming regions, to average normal or below normal for the next week or so, then moderate to seasonal or above seasonal levels by mid-October.
Competition from low-priced coal could also limit the upside in gas prices. As gas prices push well above $3, they become less competitive with coal and some utilities that were burning cheaper gas to generate power may switch back.
Loss of that demand, which helped prop up gas prices all summer, could force more gas into a well-supplied market.
Most analysts agree gas prices need to be well below $3 this autumn to ensure switching demand.
There are also concerns that if gas prices move much higher producers could opt to hook up wells that have been drilled but not flowing because gas prices below $3 were unattractive.
PRODUCTION ALSO HIGH
Baker Hughes data on Friday showed that the gas-directed rig count rose by two this week to 437 after sliding last week to another 13-year low.
It was the second gain in three weeks, but only the eighth time this year that the gas rig count has risen. The count is still down 53 percent since peaking at 936 last October.
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. 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 stubbornly high.
EIA gross natural gas production data last week showed that July output climbed 0.4 percent from June to 72.58 bcf per day, just below January's record high of 72.74 bcfd.
BEARISH STORAGE REPORT
Data on Thursday from the U.S. Energy Information Administration showed that domestic gas inventories rose last week by 77 billion cubic feet to 3.653 trillion.
Most traders viewed the build as bearish, noting it came in well above the Reuters poll estimate of 71 bcf.
But some noted it cut the surplus relative to last year by 24 bcf to 272 bcf, or 8 percent above the same week in 2011. It also slightly trimmed the excess versus the five-year average, reducing that surplus by 1 bcf to 281 bcf, or 8 percent.
(Storage graphic: )
A huge inventory surplus, which peaked in late March at nearly 900 bcf above a year earlier, has been cut by 69 percent as record heat this summer slowed weekly storage builds.
But inventories are still at record highs for this time of year and likely to end the stock-building season above last year's all-time peak of 3.852 tcf.
At 86 percent full, storage is hovering at a level not normally reached until the last 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 next week's EIA report range from 76 bcf to 98 bcf versus a year-earlier build of 108 bcf and the five-year average increase for the week of 84 bcf.
(Reporting by Joe Silha; Editing by Dale Hudson and Bob Burgdorfer)
Keywords: MARKETS NYMEX/NATGAS