UPDATE 2-US natgas futures slip; extended forecast trends milder1 hour ago by Thomson Reuters

* Front-month contract slips as extended forecast turnsmilder    * Record high storage, production also weigh on sentiment    * Chilly outlook for next week limits downside    * Coming up: EIA, Enerdata natgas storage reports Wednesday (New throughout; changes byline, adds analyst quote,technicals, updates prices)    By Joe Silha    NEW YORK, Oct 24 (Reuters) - U.S. natural gas futures lostground on Wednesday for the second time this week, undermined bythe milder trend in early November weather forecasts despite acold shot expected next week that should stir up more heatingdemand.    While front-month futures are still up more than 4 percentthis month, some fundamental traders remain skeptical about theupside without some sustained cold.    They note that inventories are still at record highs forthis time of year, and production is flowing at or near anall-time peak.    "Gas prices are going to have a difficult time in making asignificant move to the upside from current levels until it isclear that real winter weather actually arrives and remains inplace for an extended period of time," Energy ManagementInstitute's Dominick Chirichella said in a report.    At 12:35 p.m. EDT (1635 GMT), front-month gas futures on the New York Mercantile Exchange were down 7.1 cents, or 2percent, at $3.464 per million British thermal units aftertrading between $3.442 and $3.561.    The nearby contract posted a 2012 high of $3.648 on Monday,but is down about 4 percent so far this week.    Nuclear plant outages are running about 5,500 megawattsabove year-ago levels and could lift demand for gas. Tradersnoted light power loads due to mild weather this week havereduced the need for replacement generation, but that couldchange next week when the cold arrives.     Private forecaster MDA EarthSat is still calling for coldover the eastern half of the nation next week, but its 11- to15-day outlook shows more seasonal weather returning to most ofthe United States.    Chart traders noted the market has been stuck in a technicalrange for most of October, with decent support at about $3.40and resistance at recent highs in the mid-$3.60s.    Some traders and analysts also caution that if gas pricesmoved much higher, they could increase supply by encouragingproducers to hook up more wells and dampen demand by making gasless competitive with coal for power generation.        That would loosen the supply/demand balance and couldtrigger another downward spiral in gas prices, which hit 10-yearlows below $2 back in April.        INVENTORIES SET TO HIT RECORD HIGHS     U.S. Energy Information Administration data last week showedthat domestic gas inventories for the week ended Oct. 12 rose by51 billion cubic feet to 3.776 trillion cubic feet, a recordhigh for that time of year and not far below last year'sall-time high of 3.852 tcf hit in November.    (Storage graphic: http://link.reuters.com/mup44s )              Traders and analysts were waiting for the next EIA storagereport on Thursday, with most expecting stocks to have gained 67bcf last week, according to a Reuters poll released onWednesday.     Stocks rose an adjusted 95 bcf during the same week lastyear. The five-year average increase for that week is 65 bcf.    A huge inventory overhang, which peaked in late March atnearly 900 bcf, has been cut by 80 percent, but storage is about89 percent full, or already above the average peak for the yearof 3.7 tcf typically hit in early November.    Without some very cold weather soon, stocks are likely togrow for a couple of more weeks, and should end the injectionseason at a new record high.    PRODUCTION ALSO NEAR RECORD    Drilling for natural gas has been in decline for most of thelast year, with gas rigs falling some 54 percent since peakinglast year at 936 in October.    The Baker Hughes gas-directed rig count posted a 13-year lowtwo weeks ago, but so far, production has not shown anysignificant signs of slowing.     The associated gas produced from more profitable shale oiland shale gas liquids wells has kept output near record highs.    (Rig graphic: http://r.reuters.com/dyb62s )    The gas rig count has risen three times in the last fiveweeks, stirring concerns that the recent run up in gas pricesmight be encouraging some producers to increase well flows.    The EIA recently said it expected marketed gas production in2012 to be up about 4 percent from 2011's record levels, with a0.5 percent gain predicted for 2013. (Editing by Dale Hudson, Sofina Mirza-Reid and Jan Paschal)