UPDATE 3-US natgas futures end flat ahead of weekend

* Warm forecasts for the next two weeks help prop up prices

* Technical traders see market as range bound

* Record inventories, high production a concern for bulls

(Adds quote. Baker Hughes rig data, updates closing prices)

By Joe Silha

NEW YORK, July 13 (Reuters) - Front-month U.S. natural gas
futures ended unchanged on Friday in light, choppy trade, with
still-warm U.S. weather forecasts for the next two weeks
underpinning prices despite lingering concern about record-high
supplies.

The supply-demand balance for gas tightened this year as
prices hit a 10-year low of $1.90 per mmBtu and prompted many
electric utilities to use cheap gas rather than coal for power
generation.

Prices have since shot up by about 50 percent as record
heat, particularly in the last month, stirred more cooling load.

But some say prices will stay under pressure because
production still is expected to hit a record high for a second
straight year.

"We held yesterday's gain, but the market may be overvalued
here. At these prices, coal-to-gas switching is questionable,
and we may see a little less cooling demand in the next two
weeks which could mean higher storage injections," Energy
Management Institute's Dominick Chirichella told Reuters.

Front-month August gas futures on the New York
Mercantile Exchange ended the session unchanged at $2.874 per
million British thermal units, after trading between $2.829 and
$2.911. The front contract hit a six-month high of $3.06 late
last week but was unable to breach the $3 mark this week.

But decent weather demand did push the near contract up 3.5
percent in the last five sessions and drove August futures above
September for the first time this year.

Technical traders note that the market has been stuck in a
range for two weeks, seesawing between support in the $2.70s and
resistance in the $2.90s.

Forecaster MDA EarthSat expects above-normal temperatures to
dominate the northern half of the country for the next two
weeks, but readings in southern tier states, which are big gas
users, were forecast to remain near normal.

While the weather looks mildly supportive, traders noted it
was not expected to be as hot as last week. In addition, some
agreed that as gas prices near the $3 mark, some utilities will
likely switch back to coal, lowering overall gas use.

STILL-HIGH PRODUCTION

While gross U.S. gas production has slowed slightly from
January's record highs, output is still flowing at near all-time
peaks despite declines in dry gas drilling.

Data from Baker Hughes on Friday showed the gas-directed rig
count fell by 20 this week to 522, the seventh decline in eight
weeks and the lowest count since August 1999. ID:nL2E8IDCPR]

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

A 44 percent drop in dry gas drilling in the last nine
months has stirred expectations that producers were getting
serious about stemming the flood of record gas supplies.

But horizontal rigs, the type most often used to extract oil
or gas from shale, while down slightly this week to 1,166, are
not far below the all-time high of 1,193 hit seven weeks ago.

Drillers this year have shifted rigs away from dry gas
operations 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.

The U.S. Energy Information Administration on Tuesday said
it expected marketed gas production in 2012 to rise by 4.2
percent to a record 68.98 billion cubic feet per day, easily
beating last year's record of 66.22 bcfd.

ANOTHER BELOW-AVERAGE BUILD

Most traders viewed Thursday's 33 bcf weekly natural gas
inventory build as bearish, noting the gain was above the
Reuters poll estimate of 26 bcf.

The EIA report showed that total U.S. gas inventories
climbed last week to 3.135 trillion cubic feet, still a record
high for this time.

The weekly injection trimmed the surplus to last year by 54
bcf to 548 bcf, or 21 percent above the same week in 2011. It
also sliced 57 bcf from the excess versus the five-year average,
reducing that surplus to 516 bcf, or 20 percent above average.

(Storage graphic: link.reuters.com/mup44s)

Weekly builds have fallen below the seasonal norm for 11
straight weeks and helped pull the surplus to last year down by
38 percent from late-March highs. Traders expect that trend to
continue for at least another two reports.

But total storage stands at about 76 percent full, a level
not normally reached until the first week of September.
Producing-region stocks are at 84 percent of estimated capacity.

The storage surplus to last year must be cut by at least
another 300 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 a record 4.002 tcf by the end of October.

Early injection estimates for next week's EIA report range
from 13 bcf to 55 bcf versus last year's build of 67 bcf and the
five-year average increase for the week of 74 bcf.

Concerns remain that the storage overhang could still drive
prices to new lows later this summer as storage caverns fill.

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