U.S. natural gas rig count slips to 6-1/2-yr low

NEW YORK, May 29 (Reuters) - The number of rigs drilling for natural gas in the United States fell by 8 this week to 703, the lowest level in 6-1/2 years, according to a report issued Friday by oil services firm Baker Hughes in Houston.

U.S. natural gas drilling rigs have been in a steady decline since peaking above 1,600 in September, and now stand at about 776 below the same week last year, at the lowest level since November 2002, when there were 695 gas rigs operating.

Traders and analysts have said tight credit and a 75 percent slide in gas prices over the past 11 months forced many producers to scale back drilling operations.

Near record-high gas production last year, and a deepening recession that sharply cut demand, led to a severe oversupply that collapsed gas prices to about $3.25 per mmBtu in late April from their peak above $13 last July.

With the natural gas drilling rig count falling at a record pace this year, most analysts expect year-on-year output declines soon, probably by early summer, as gas rigs drop below 700 before bottoming, a level that should tighten the overall supply-demand balance. (Reporting by Edward McAllister; Editing by Walter Bagley)