* 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 gas futures ended higher on Wednesday for a third straight day, with chilly U.S. weather this week stirring demand, but milder Northeast and Midwest weather forecasts for next week helped limit the upside.
The front-month contract, which posted a 2012 high of $3.546 per million British thermal units early last week, has climbed 22 percent in a little over two weeks as traders anticipated a pickup in demand this week from the season's first cold snap.
But despite recent gains, most fundamental traders remain skeptical of the upside. Inventories are at record highs for this time of year, production is at or near an all-time peak and milder 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 fresh buying from speculators, but we're looking for a pullback," Gelber & Associates analyst Aaron Calder said, adding he expected milder weather to pressure prices.
Front-month gas futures
on the New York Mercantile Exchange 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 traders sharply increased their net long positions. It was their first gain 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 have been modest, with the front contract unable to break last week's to a new 2012 high and rising just 2.3 percent.
Nuclear plant outages have lent some support to prices. The roughly 20,000 megawatts of nuclear generation offline for maintenance this week have added about 600 million cubic feet, or nearly 1 percent, to daily gas demand, according to data from Thomson Reuters Analytics.
But concerns have been growing that, if gas prices move much higher, producers could opt to hook up wells that have been drilled but are not flowing because gas prices below $3 were unattractive.
Competition from low-priced coal may also be weighing on sentiment. As gas prices push well above $3, they become less competitive with coal and could prompt some utilities that were burning cheaper gas for power generation to switch back.
Most analysts agree gas prices need to be well below $3 this autumn to maintain switching demand. Loss of that demand, which helped prop up gas prices all summer, could force more gas into already-packed inventories.
STORAGE BUILDS PICK UP
Traders and analysts were waiting for the next U.S. Energy Information Administration storage report on Thursday, with most expecting 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 last year. The five-year average increase for that week is 84 bcf.
EIA data last week showed that domestic gas inventories for the week ended Sept. 28 climbed to 3.653 trillion cubic feet, still a record high for that time of year.
(Storage graphic: )
At 86 percent full, storage is hovering at a level not normally reached until the last week of October and offers a huge cushion that can help offset any weather-related spikes in demand or supply disruptions from storms.
Inventories are still expected to end the stock-building season above last year's all-time peak of 3.852 tcf.
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.
On the demand side, the agency expects total consumption to climb 4.7 percent this year but slip 0.2 percent in 2013 as expected declines in electric power use offset increases from residential, commercial and industrial users.
(Reporting by Joe Silha; Editing by Dale Hudson, Jim Marshall and Leslie Gevirtz)
Keywords: MARKETS NYMEX/NATGAS