NEW YORK -- U.S. natural gas futures slipped early Monday on continued concerns over high inventories despite warmer weather on tap for consuming regions this week and next.
Nearby futures recovered on Friday from a near six-week low and were down 1 percent for the week.
Front-month July natural gas futures on the New York Mercantile Exchange were at $2.261 per million British thermal units in early trade, down 3.8 cents, or nearly 2 percent.
The contract slid last week to as low as $2.231, the lowest price for a front-month since late April.
Futures hit a 3-1/2-month high of $2.759 in mid-May, but traders said the big rise removed gas from favor over coal for power generation.
But since posting a 10-year low of $1.902 twice in late April, nearby futures are still up 18 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas.
BIG STORAGE BUILD ADDS TO BLOATED INVENTORIES
Last week's gas storage report from the U.S. Energy Information Administration showed total domestic gas inventories rose by 62 billion cubic feet to 2.877 trillion cubic feet.
The build was above Reuters poll expectations for a 56 bcf gain, but it was still below average for an eighth time in nine weeks.
The inventory build trimmed the surplus to last year to 713 bcf, or 33 percent, and sliced the excess versus the five-year average, to 687 bcf, or 31 percent.
(Storage graphic: http://link.reuters.com/mup44s)
Strong utility demand for gas has slowed inventory builds, pulling the surplus to last year down 20 percent from late March highs.
But with stocks still at record highs for this time of year, there are still concerns that the storage glut will drive prices lower this summer as storage caverns fill up.
The storage surplus to last year will have to be cut by at least another 465 bcf to avoid breaching the government's 4.1-tcf estimate of capacity. Stocks peaked last year in November at a record high of 3.852 tcf.
Early injection estimates for this week's EIA report range from 64 bcf to 85 bcf versus last year's adjusted build of 72 bcf and a five-year average increase for that week of 88 bcf.
PRODUCTION FALLING FROM RECORD
Recent EIA data also showed gas production was finally dropping from January's record high, with two straight monthly declines.
The EIA said U.S. natural gas production fell 0.4 percent in March to 71.76 bcf as producers continued to scale back drilling in the face of low prices. It was a second monthly decline after a revised 1 percent fall in February.
In addition, Baker Hughes data on Friday showed the gas-directed rig count fell by 23 to a nearly 13-year low of 565, its sixth drop in seven weeks. The 40 percent drop in dry gas drilling - since peaking at 936 in October - has stirred talk producers were getting serious about stemming the flood of supplies.
But the shift away from dry gas to higher-value shale oil and shale gas liquid plays still produces plenty of associated gas that ends up in the market after processing. That has slowed the overall drop in dry gas output.
(Rig graphic: http://r.reuters.com/dyb62s)
The National Weather Service's six- to 10-day outlook issued on Sunday called for above-normal readings for much of the eastern half of the nation and in South Texas, and normal or below-normal readings in Florida and in the West.
Nuclear power plant outages were running at about 11,100 megawatts, or 11 percent, on Monday, down from about 12,300 MW out a year ago but up from a five-year outage rate of about 8,100 MW.
(Reporting by Eileen Houlihan; Editing by John Picinich)