UPDATE 2-US natgas futures slip, cold forecast limits selling1 hour ago by Thomson Reuters

* Near record-high inventories, production weigh onsentiment    * Coming up: Baker Hughes rig data, CFTC trade data Friday (Releads, adds byline, analyst quote, updates futures prices)    By Joe Silha    NEW YORK, Dec 21 (Reuters) - Front-month U.S. natural gasfutures turned slightly lower by midday on Friday, pressured bysome profit-taking after recent gains though the downside seemedlimited by colder extended weather forecasts that should boostdemand for heating.    "I think this is a little profit-taking. No one wants to betheavily on which way temperatures will swing, but it does looklike we're going to have stronger heating demand which shouldgive us a couple of weeks of above-average storage withdrawals,"Citi Futures analyst Tim Evans told Reuters.    Many traders remained skeptical about 10-day and 15-dayforecasts, noting computer projections out that far haverecently been unreliable, often flipping from warm to cold andback again.    At 12:15 p.m. EST (1715 GMT), front-month gas futures on the New York Mercantile Exchange were down 0.4 cent at $3.458per million British thermal units after trading between $3.425and $3.508. The front contract is up about 4.3 percent so farthis week.    Without some sustained cold to boost heating loads, mosttraders agree it will be difficult for gas prices to push higherwith inventories still at record highs for this time of year andproduction at or near an all-time peak.    Traders also noted that demand typically slows during theChristmas and New Year holidays regardless of weather becausemany schools and businesses are closed.    NYMEX floor trading will close early on Monday at 1:30 p.m.EST (1830 GMT) and remain shut on Tuesday for Christmas.    Commodity Weather Group expects a cold pattern to continuefor most of the United States through the rest of December andinto the first week of January.    If the weather stays cold, traders said gas prices couldgarner support from nuclear plant outages, which are stillrunning at about 11,400 megawatts this week, or nearly 4,000 MWabove average for this time of year. Gas-fired plants aretypically used to replace any lost nuclear generation.        DRILLING DECLINES, OUTPUT STILL NEAR RECORD    Traders were waiting for the next drilling rig report fromBaker Hughes on Friday.    (Rig graphic: http://r.reuters.com/dyb62s)    Drilling for natural gas has mostly been in decline for morethan a year, with gas rigs down 56 percent since peaking at 936 in October 2011.     The gas-directed rig count is hovering just above the13-1/2-year low of 413 posted six weeks ago, but so farproduction has not shown any significant sign of slowing.     The U.S. Energy Information Administration last week said itexpected gas output in 2013 to rise to a record high of 69.59billion cubic feet per day, the third straight annual record.            INVENTORIES DROP MORE THAN EXPECTED     EIA data on Thursday showed domestic gas inventories felllast week by 82 bcf to 3.724 trillion cubic feet.    While traders viewed the withdrawal as supportive relativeto expectations - a Reuters poll was looking for a 72-bcf drop -they noted it was well below last year's 100-bcf pull and thefive-year average draw for that week of 144 bcf.    The weekly draw increased the storage surplus relative tolast year by 18 bcf to 66 bcf, or nearly 2 percent. It alsoadded 62 bcf to the excess versus the five-year average,increasing that total to 345 bcf, or 10 percent.    (Storage graphic: http://link.reuters.com/mup44s )     The storage surpluses are expected to widen further in nextweek's report, with early withdrawal estimates ranging from 66bcf to 83 bcf. That would be short of the 87 bcf pulled frominventory during the same week last year, while the five-yearaverage decline for that week is 140 bcf.     Gas inventories started the heating season in November at arecord high of 3.929 tcf, making this the fourth straight yearin which storage headed into winter at a record peak. (Reporting by Joe Silha; Editing by Dale Hudson)