Natural-gas futures fell Monday, pausing after notching a six-month high Friday, even as forecasts called for continued hot weather in the drough-plagued Central U.S. Natural-gas futures for August delivery recently traded 4.1 cents, or 1.3%, lower at $3.040/MMBtu on the New York Mercantile Exchange. After two brief dips as low as $2.991/MMBtu earlier in the session, gas prices pared losses to hold near 2012 highs above the key $3/MMBtu level. The Midwest and Plains will continue to see extreme heat this week and next, according to the Commodity Weather Group, a weather forecaster. High temperatures increase demand for air conditioning, prompting power plants to burn more natural gas to meet the need. Market watchers weren't surprised by the retreat Monday after natural gas futures gained 7.2% last week, with some analysts suggesting a settle above $3 would be a bullish signal. "With the temperatures as hot as they are, it should stay above $3" today, said Tom Saal, a broker at INTL Hencorp Futures. "Prices aren't blowing out of control here, but they have shown a little more backbone." Prices closed at $3.081/MMBtu Friday, their highest settlement price since Jan. 4 and the first close above $3/MMBtu since Jan. 9. The $3/MMBtu is psychologically important to some traders, who see that price as the point at which power plants will begin switching from natural gas to coal. "With high inventories of coal at many utility locations coupled with unfavorable economics for Nat gas over coal, I would expect some utilities to move back to coal" in the near term, Dominick Chirichella, oil analyst for the Energy Management Institute, said in a note. High temperatures over the last month have slowed the growth of the U.S. oversupply of natural gas. Last week, the amount of natural gas entering storage--28 billion cubic feet--fell far below the five-year average of 74 bcf for the week. Total inventories are 17.5% higher than the five-year average for this time of year. Earlier this year, inventories were nearly 40% above average. Lower-than-expected injections have fuelel optimism that the oversupply of gas will continue to decline, Jim Ritterbusch of Ritterbusch and Associates, said in a note to clients. Natural gas for next-day delivery at Transcontinental Zone 6 in New York recently traded at $3.2650/mmBtu, according to IntercontinentalExchange, compared with Friday's average of $3.1672/mmBtu. Write to Nicole Friedman at nicole.friedman@dowjones.com Subscribe to WSJ: http://online.wsj.com?mod=djnwires

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