UPDATE 4-US natural gas drops nearly 6 pct, recoils from $3
* Gas finds resistance at $3, retreats
* Gas starting to lose price appeal over coal
* Cooler weather adds pressure to prices (Adds settlement price, analyst quote)
NEW YORK, July 6 (Reuters) - U.S. natural gas futures fell nearly 6 percent on Friday after briefly hitting $3 for the first time since January as pressure from a forecast for cooler weather and reduced power demand outweighed a bullish government storage report.
The pull-back threatens to cap a nearly four-week rally that pushed prices up by more than a third, reaching a point at which analysts say gas is losing its price appeal over coal as a power-generation fuel.
New weather reports suggested that higher-than-normal temperatures, which have increased power and gas demand, may moderate over the next week.
"After an initial spike in prices, the prompt contract appeared to have hit very strong resistance at $3 (per million British thermal units) and the August contract in turn fell by 10 cents an hour after the (storage) data release," Citi analysts said in a note.
After topping $3 in overnight trade, prices briefly pierced the psychological resistance point again in the wake of data showing that domestic gas inventories rose last week by 39 billion cubic feet, less than the 44 bcf forecast by analysts.
Private weather forecaster EarthSat forecast above-normal temperatures for the next five days in the east and mid-west and much of the west coast, with moderating temperatures expected across the country for the 6- to 10-day outlook.
August futures on the New York Mercantile Exchange settled down nearly 17 cents, or 5.7 percent, at $2.776 after earlier hitting $3.060, the highest level since early January. Gas for September to November showed similar declines.
Since posting a 10-year low of $1.902 twice in late April, nearby futures are up about 55 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas.
Data from Baker Hughes on Friday showed the gas-directed rig count rose 8 to 542, its first rise in 7 weeks.
(Rig graphic: r.reuters.com/dyb62s)
In the cash market, gas bound for the NYMEX delivery point Henry Hub NG-W-HH in Louisiana was heard early at $2.95, up 5 cents from Thursday's average of $2.90.
Early Hub cash deals were done at a 2-cent premium to the front month contract, easing slightly from deals done late Thursday about 5 cents above the front month. Gas on the Transco pipeline at the New York citygate NG-NYCZ6 was heard early near $3.17, down 6 cents from Thursday's average of $3.23.
ANOTHER BELOW-AVERAGE BUILD
The U.S. natural gas inventory build of 39 bcf was much lower than the 90 bcf build over the same period last year and the five-year average of 79 bcf, the U.S. Energy Information Administration reported.
Traders noted this week's build was likely reduced not only by widespread heat, but by some offshore gas production shut ins in the Gulf of Mexico due to Tropical Storm Debby.
The storm knocked out less than 5 bcf of output in total over several days due to evacuations, but there were no reports of damage to offshore facilities. Output was near fully restored by late last week.
Lagging storage builds this season have raised expectations that record-high inventories can be trimmed to more manageable levels in the 20 weeks left before winter withdrawals begin.
The injection number trimmed the surplus to last year to 620 bcf, or 25 percent, and sliced the excess versus the five-year average to 573 bcf, or 22 percent.
(Storage graphic: link.reuters.com/mup44s)
Total storage is already 75 percent full and hovering at a level not normally reached until late August. Producing-region stocks are at 84 percent of estimated capacity. (Reporting by Edward McAllister; editing by M.D. Golan, David Gregorio, Andrew Hay and Bob Burgdorfer)
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