* Milder weather on tap for consuming regions * Isaac storm shut-ins expected to resume service soon * Coming up: API oil data Wed., EIA oil, gas data Thurs. By Eileen Houlihan NEW YORK, Sept 4 (Reuters) - U.S. natural gas futures edged higher early on Tuesday, lifted by the return of post-holiday industrial demand following the U.S. Labor Day holiday weekend. Most traders expect limited upside, however, with milder autumn weather on tap for consuming regions of the nation and the expected return shortly of most shut-in gas after Hurricane Isaac. Isaac came ashore early last week in southeastern Louisiana. Despite shutting more than 70 percent, more than 3.26 billion cubic feet per day, of offshore U.S. natural gas production for most of last week, there were few reports of damage to facilities from the low-level Category 1 storm. Some traders said strong nuclear outages could help support prices in the coming weeks, but most expect futures to have a hard time breaking back above $3 per million British thermal units, the level at which gas loses much of its appeal over coal for power generation. As of 9:31 a.m. EDT (1331 GMT), front-month October natural gas futures on the New York Mercantile Exchange were at $2.844 per mmBtu, up 4.5 cents, or nearly 2 percent. NYMEX floor trading was closed Monday for the Labor Day holiday. The nearby contract peaked at $3.277 in late July, its highest mark since December. The National Weather Service's six- to 10-day outlook issued on Monday called for mostly normal temperatures in consuming regions in the Northeast and Midwest and along the West Coast, and above-normal readings in other parts of the West. On the nuclear front, outages totaled about 9,700 megawatts, or 10 percent of U.S. capacity on Tuesday, up from 9,600 MW out on Friday and 6,400 MW out as a five-year average, but just under the 9,800 MW out a year ago. STORAGE STILL BLOATED Last week's gas storage report from the U.S. Energy Information Administration showed domestic gas inventories rose the previous week by 66 billion cubic feet to 3.374 trillion cubic feet. (Storage graphic: link.reuters.com/mup44s) The build came in above expectations for a 61-bcf gain, as well as last year's rise of 60 bcf and a five-year average gain of 62 bcf for that week. It was the first time in 18 weeks the stock build exceeded the seasonal norm. While a huge inventory surplus, which peaked in late March at nearly 900 billion cubic feet above a year earlier, has been cut in half, storage remains at record highs for this time of year. At 82 percent full, stocks are at levels not normally reached until late September and offer a huge cushion that can help offset any weather-related spikes in demand or further supply disruptions from storms. There are still concerns that the storage overhang could drive prices to new lows later this summer if stocks climb to levels that test the government's 4.1-tcf estimate of capacity. Early injection estimates for this week's EIA report range from 21 bcf to 57 bcf versus a year-earlier build of 62 bcf and the five-year average increase for the week of 60 bcf. DRILLING RIGS SINK TO 13-YEAR LOW The number of rigs drilling for natural gas in the United States slid by 13 last week to a 13-year low of 473, data from Houston-based oil services firm Baker Hughes showed on Friday. (Graphic: r.reuters.com/dyb62s) The count slid for the 13th time in 15 weeks. The nearly steady decline in gas-directed drilling over the last 10 months has fed expectations that producers were getting serious about stemming the flood of record supplies. But so far there is little evidence that gas output is slowing. (Reporting by Eileen Houlihan;Editing by Sofina Mirza-Reid)

Source