UPDATE 3-US natgas futures gain for 5th day, front at 7-mth high

* Futures end up for fifth day, front hits another 7-month
high
* Still-warm forecasts for this week back gains
* Expectations for another light weekly storage build lend
support
* Record inventories, high production keep buyers cautious
* Coming Up: Reuters natural gas storage poll on Wednesday

(Releads, adds analyst quote, technical, spread data, updates
prices)
By Joe Silha
NEW YORK, July 24 (Reuters) - U.S. natural gas futures ended
higher on Tuesday for a fifth straight day, with bullish
technicals, still-warm forecasts and estimates for another light
weekly inventory build driving the front contract to a fresh
seven-month high.
Early this year, decade-low prices below $2 per mmBtu helped
tighten the supply/demand balance for gas by prompting many
electric utilities to switch from coal to cheaper gas to
generate power.
Then record heat this summer, particularly in the Midwest
but also at times in the Northeast, lifted demand further and
helped drive gas prices up about 65 percent from spring lows.
A string of light weekly inventory builds and expectations
for more of the same in coming weeks have also supported prices.
Widespread heat has slowed storage builds for 12 straight
weeks and helped pull a record inventory surplus to year-ago
down nearly 43 percent from late-March highs.
"Sentiment is stacking up on the bullish side which is
emboldening new buyers. Computer model runs suggest there is
additional heat coming, but there are concerns about coal-to-gas
switching - it's becoming less enticing with these economics,"
Gelber & Associates analyst Pax Saunders told Reuters.
Front-month August gas futures on the New York
Mercantile Exchange, which expire on Friday, ended up 7 cents,
or 2.2 percent, at $3.187 per million British thermal units
after climbing late to a new seven-month high of $3.196.
Nearby futures have gained 14 percent in the last five
sessions, their biggest five-day run in more than a month.
Relative strength up front from the heat narrowed spreads to
winter months for a seventh day.
The December premium to August ended at 33.8 cents, down 0.8
cent from Monday and the narrowest in at least two years,
according to Reuters data. That spread has lost a whopping 36
percent in the last seven sessions.
Technical traders noted the chart picture for gas turned
more bullish over the last few weeks as prices powered through
some key resistance points like the 200-day moving average.
But some said the market was due for a profit taking
pullback, noting the 14-day relative strength index has climbed
well into overbought territory above 70 percent this week.
In addition, many traders remain skeptical of the upside,
noting peak summer heat will be fading in the next few weeks and
storage and production remain at or near record highs.
Some traders also caution that as gas prices push above the
$3 mark, many utilities that switched this year from coal to
cheaper gas to generate power could move back to coal.
In its 6-10 day forecast, MDA EarthSat still expects above
normal temperatures to blanket most of the nation, with some
much above normal readings predicted for the Midwest.

ANOTHER BELOW-AVERAGE BUILD EXPECTED
Lagging storage builds this season have raised expectations
that record-high storage can be trimmed to more manageable
levels in the 17 weeks left before winter withdrawals begin.
Injection estimates for Thursday's Energy Information
Administration storage report range from 19 billion to 31
billion cubic feet, with most in the mid- to high-30s.
Stocks rose an adjusted 48 bcf during the same week last
year. The five-year average increase for that week is 61 bcf.
EIA data last week showed that total U.S. gas inventories
for the week ended July 13 climbed to 3.163 trillion cubic feet,
about 77 percent full and a level not normally reached until
mid-September.
(Storage graphic: link.reuters.com/mup44s)
While the surpluses to year-ago and the five-year average
have declined, there's still 500 bcf more gas in inventory this
year than last year, a huge cushion that can help offset any
unexpected spikes in demand or disruptions in supply.
Concerns remain that the storage overhang could still drive
prices to new lows later this summer as storage caverns fill.
The storage surplus to last year must be cut by at least
another 260 bcf to avoid breaching the government's 4.1-tcf
estimate of total capacity. Stocks peaked last year in November
at a record 3.852 tcf. EIA estimates that gas storage will climb
to 4.002 tcf by the end of October.

STILL-HIGH PRODUCTION
U.S. gas production has slowed slightly this year, but
output is still flowing near an all-time peak despite the steady
decline in dry gas drilling to 13-year lows.
(Baker Hughes rig graphic: r.reuters.com/dyb62s )
Dry gas drilling has become largely uneconomical at current
prices, but drillers have been moving rigs to more profitable
shale oil and shale gas liquid plays that still produce plenty
of associated gas that ends up in the market after processing.
Baker Hughes data last week showed that horizontal rigs, the
type used to extract oil or gas from shale, fell for a second
straight week. But the horizontal count at 1,164 is still not
far below the all-time high of 1,193 hit nine weeks ago.
The shift to more horizontal drilling has slowed the overall
drop in dry gas output.

(Reporting By Joe Silha; editing by Sofina Mirza-Reid and David
Gregorio)