By Joe Silha

NEW YORK, Jan 9 (Reuters) - Front-month U.S. natural gas

futures lost ground on Wednesday for a third straight day, as

fairly mild near-term weather forecasts and bearish government

data on production this week continued to pressure the complex.

Despite expectations for a supportive weekly inventory

report on Thursday - a Reuters poll on Wednesday put the

withdrawal estimate well above last year and the five-year

average - many traders expect prices to remain on the defensive

with storage and production still at or near record highs.

'The weather recently has not been as harsh as expected, and

we also haven't seen any retrenchment (pullback) in production,'

said Steve Platt, an analyst at Archer Financial in Chicago.

Without much colder weather to force homeowners and

businesses to turn up their heaters, traders said any upside in

prices will be difficult.

While mild weather covering the eastern half of the nation

this week is expected to taper off next week, Commodity Weather

Group noted the outlook for the six- to 15-day period has been

trending warmer with weaker cooling potential.

The private forecaster's 11- to 15-day map now shows

seasonal readings for most of the country, with cold only

expected across northern tier states.

At 12:10 p.m. EST (1710 GMT), front-month gas futures

on the New York Mercantile Exchange were down 10.7 cents, or 3.3

percent, at $3.111 per million British thermal units after

trading between $3.102 and $3.227.

The front contract, which hit a three-month low of $3.05

last Wednesday, lost 5.2 percent last week. So far this week the

contract is down another 5.4 percent as milder weather moved

across the country and slowed demand for heating.

The technical, or chart picture, has also been tilting

against the bulls. Gas prices over the last week dropped below

the 100-day moving average and the intermediate trendline dating

back to the 10-year low of $1.902 hit in April.

While the market is oversold and there should be some

psychological buying at the $3 level, better support may lie at

the 200-day moving average near $2.93.

Traders said gas prices could pick up support from nuclear

plant outages, which are running at about 8,500 megawatts this

week, or 2,800 MW above average for this time of year.

Gas-fired plants are typically used to offset any lost

nuclear generation, but traders said the milder temperatures

ahead were likely to lessen the need for replacement power.

HIGH STORAGE

While gas inventories are likely to drop below year-ago

levels in Thursday's Energy Information Administration report,

total stocks will still be running at more than 10 percent above

the five-year average, a comfortable cushion to meet any

unexpected spikes in winter demand or disruptions in supply.

(Storage graphic: http://link.reuters.com/mut84t )

A Reuters poll on Wednesday showed that traders and analysts

expected stocks to have fallen by 186 billion cubic feet last

week. Storage dropped by 95 bcf at about the same time last

year, while the five-year average decline for that week is about

149 bcf.

EIA data last week showed that gas inventories for the week

ended Dec. 28 stood at 3.517 trillion cubic feet, still a record

high for that time of year.

GAS DRILLING GAINS, PRODUCTION STILL NEAR RECORD

Drilling for natural gas has fallen some 53 percent since

peaking in 2011 at 936 in October, but so far production has not

shown any signs of slowing.

(Rig graphic: http://r.reuters.com/dyb62s)

EIA data on Monday showed that gross U.S. gas production in

October climbed to 73.54 bcf per day, the second straight

monthly record.

Then on Tuesday, the agency said it expected marketed

natural gas production in 2013 to rise nearly 1 percent to an

average of 69.84 bcf daily, which would be the third straight

year of record output.

(Reporting By Joe Silha; Editing by Bob Burgdorfer)

Keywords: MARKETS NYMEX/NATGAS

(joe.silha@thomsonreuters.com)(+1 646 223 6071)(Reuters Messaging: joe.silha.thomsonreuters.com@reuters.net)

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