* Front month hits lowest mark since late April * More moderate weather on tap long-term * Recent production, drilling rig data supportive * Coming Up: API oil data Tuesday, EIA oil data Wednesday NEW YORK, June 12 (Reuters) - U.S. natural gas futures edged higher in early trading Tuesday after posting a six-week spot chart low. Nearby futures ended lower on Monday for a third time in four sessions, as moderating weather forecasts and bloated inventories continued to pressure prices. Front-month July natural gas futures on the New York Mercantile Exchange were at $2.246 per million British thermal units in early trading, up 2.8 cents, or about 1 percent. The contract slid as low as $2.173 in electronic trading, the lowest price for a front-month since late April. Futures hit a 3-1/2-month high of $2.759 in mid-May, but traders said the big rise removed gas from favor over coal for power generation. But since posting a 10-year low of $1.902 twice in late April, nearby futures are still up 18 percent on signs that record production was finally slowing and demand picking up as more electric utilities switched from coal to gas. BIG STORAGE BUILD ADDS TO BLOATED INVENTORIES Last week's gas storage report from the U.S. Energy Information Administration showed total domestic gas inventories rose 62 billion cubic feet to 2.877 trillion cubic feet. The build was above Reuters poll expectations for a 56 bcf gain, but it was still below average for an eighth time in nine weeks. The inventory build trimmed the surplus to last year to 713 bcf, or 33 percent, and sliced the excess versus the five-year average, to 687 bcf, or 31 percent. (Storage graphic: link.reuters.com/mup44s) Strong utility demand for gas has slowed inventory builds, pulling the surplus to last year down 20 percent from late March highs. But with stocks still at record highs for this time of year, there are still concerns that the storage glut will drive prices lower this summer as storage caverns fill up. The storage surplus to last year will have to be cut by at least another 465 bcf to avoid breaching the government's 4.1-tcf estimate of capacity. Stocks peaked last year in November at a record high of 3.852 tcf. Early injection estimates for this week's EIA report range from 64 bcf to 80 bcf versus last year's adjusted build of 72 bcf and a five-year average increase for that week of 88 bcf. PRODUCTION FALLING FROM RECORD Recent EIA data also showed gas production was finally dropping from January's record high, with two straight monthly declines. The EIA said U.S. natural gas production fell 0.4 percent in March to 71.76 bcf as producers continued to scale back drilling in the face of low prices. It was a second monthly decline after a revised 1 percent fall in February. In addition, Baker Hughes data on Friday showed the gas-directed rig count fell by 23 to a nearly 13-year low of 565, its sixth drop in seven weeks. The 40 percent drop in dry gas drilling - since peaking at 936 in October - has stirred talk producers were getting serious about stemming the flood of supplies. But the shift away from dry gas to higher-value shale oil and shale gas liquid plays still produces plenty of associated gas that ends up in the market after processing. That has slowed the overall drop in dry gas output. (Rig graphic: r.reuters.com/dyb62s) MORE FUNDAMENTALS The National Weather Service's six- to 10-day outlook issued on Monday called for above-normal readings for much of the eastern half of the nation and below-normal readings in Florida and in the West. Nuclear power plant outages were running at about 11,000 megawatts, or 11 percent, on Tuesday, just up from 10,600 MW out a year ago and a five-year outage rate of about 7,500 MW. The U.S. National Hurricane Center said tropical cyclone formation was not expected during the next 48 hours. The Atlantic hurricane season runs from June 1 through Nov. 30. (Reporting by Eileen Houlihan; Editing by Maureen Bavdek)

Source