* Futures slip for fourth time in five sessions
* Mild weather, high supplies still weigh on sentiment
* Late-winter nuclear plant outages help boost gas demand
* Recent gas rig count declines, producer cuts also lend support
* Coming Up: EIA, Enerdata natgas inventory data Thursday
NEW YORK, March 1 (Reuters) - Front-month U.S. natural gas futures lost ground early Thursday, with mild late-winter weather forecasts and record high supplies still undermining sentiment despite the recent slowdown in drilling that could eventually curb record high output.
Gas prices have slipped in four of the last five sessions, bouncing only on Wednesday as shorts covered ahead of a weekly inventory report due out later this morning.
While planned output cuts by several key producers and unexpected nuclear plant outages have lent some support to prices - front month gas gained 4.5 percent last month - traders said a huge overhang in supply and tapering winter heating demand were likely to limit gains in the near term.
At 8:45 a.m. EST, the front-month gas futures contract on the New York Mercantile Exchange was down 7.6 cents, or about 3 percent, at $2.54 per million British thermal units after trading between $2.53 and $2.597.
Gas prices hit a 10-year low of $2.231 in late January but have mostly been locked in a trading range between $2.40 and $2.70 ever since.
AccuWeather.com expects temperatures in the Northeast and Midwest, key gas-consuming regions, to mostly average above normal for the next 10 days, with daytime highs, at times, climbing to the mid- or high-50s degrees Fahrenheit.
Traders noted recent weekly inventory reports have hinted at a modest tightening in the supply-demand balance, but the slightly supportive data so far has failed to stir buying.
Late-season nuclear plant outages are still running about 6,600 megawatts above normal for this time of year, which could add more than 1 billion cubic feet to daily gas demand.
In addition, relatively cheap gas has drawn more industrial use and prompted more utility fuel switching away from coal.
But with production still running at or near all-time highs, inventories likely to end winter at a record high and winter winding down, traders said concerns were growing that gas prices could soon test the January low.
STORAGE, THE BIGGEST PROBLEM FOR BULLS
Data from the U.S. Energy Information Administration on Thursday is expected to show that gas inventories declined last week by 90 billion cubic feet, according to a Reuters poll on Wednesday.
That would fall between last year's drop of 85 bcf and the five-year average decline for that week of 118 bcf.
Last week's inventory draw was larger than expected and trimmed both the inventory surplus to last year and the five-year average, but storage at 2.595 trillion cubic feet is still at record highs for this time.
A huge stock surplus of more than 700 bcf, or over 40 percent, built up during one of the mildest winters on record should provide a huge cushion to meet any growth in demand this year. (Storage graphic: link.reuters.com/mup44s )
Last winter at this time, cold weather forced storage owners to pull more than 2 tcf from inventory to help meet the surge in heating demand, but this season, only about 1.3 tcf of storage gas has been burned up, a 37 percent drop.
With no extreme cold on the horizon, most analysts expect stocks to end the heating season at an all-time high of 2.2 tcf, well above the previous record of 2.148 tcf set in 1983.
The inventory overhang could also spell trouble for prices late in the summer stock-building season if storage caverns fill to capacity and force more supply into the market.
Estimates for U.S. working gas storage capacity range from 4.1 tcf to 4.4 tcf, a level that could be tested if storage builds from April through October match last year's 2.2 tcf.
IS PRODUCTION SLOWING?
EIA data on Wednesday showed that lower 48 U.S. gross natural gas production in December slipped from a record high in November. It was the first significant decline in 10 months.
Traders have been waiting for steep declines in gas drilling and planned output cuts by several key producers to be reflected in output data, but EIA said the largest decline, seen in Wyoming, was partly due to a compressor fire.
Output in key shale plays like Marcellus is still growing.
Baker Hughes drilling data last week showed the gas-directed rig count fell for the seventh straight week to a 29-month low. The 24 percent slide since the count peaked at 936 in October has stirred talk that low prices may finally slow production. (Graphic: r.reuters.com/dyb62s)
Analysts agree it can take months for a slowdown in drilling to translate into lower production, noting the producer shift in spending to higher-value oil and gas liquids plays still produces plenty of associated gas that partly offsets any reductions in pure dry gas operations.
A Bernstein Research report last week said the gas-directed rig count would have to drop to about 600 before they would be comfortable forecasting flat to falling production.
Most analysts say planned production cuts announced so far are not nearly enough to tighten an oversupplied gas market, adding it will be difficult to balance supply and demand without serious drilling declines.
Prices as of 8:53 a.m. EST in $/mmBtu:
LAST NET PCT LOW HIGH CURRENT DAY AGO
CHNG CHNG VOL VOL NGc1 2.543 -0.073 -2.8% 2.53 2.597 14,160 122,327 NGc2 2.644 -0.066 -2.4% 2.6300 2.691 5,808 40,662 CLc1 107.32 0.25 0.2% 106.55 107.60 45,396 278,723 CLc2 107.71 0.19 0.2% 107.01 108.07 6,553 64,585
TECHS LAST MA-30 MA-90 Boll up Boll dn RSI-30 Imp Vol NGc1 2.543 2.530 3.070 2.680 2.380 47.13 44.59 CLc1 107.32 101.53 99.02 110.85 94.64 63.23 28.32
(Reporting By Joe Silha)