* Mild weather next two weeks expected to weaken demand
* Tropical Storm Jerry forms in Atlantic
* NHC also monitoring storm system in Caribbean
By Joe Silha
NEW YORK, Sept 30 (Reuters) - U.S. natural gas futures closed lower on Monday, with fairly mild U.S. weather forecasts for the next two weeks lowering prospects for a pickup in demand.
The front-month contract, which posted a five-week low of $3.402 on Thursday after a bearish weekly inventory report, lost 2.7 percent last week on the mild outlook and no serious storm threats to Gulf of Mexico gas supplies.
In September, the nearby contract logged its fourth loss in the last five months, dropping 0.6 percent. The contract also posted a fractional loss in the third quarter but is still up 6.2 percent so far this year.
“Prices came off on the mild weather expected for the next couple of weeks that should lead to larger storage injections, but we should see some colder weather later next month,” said Aaron Calder, analyst at Gelber & Associates in Houston.
Front gas futures on the New York Mercantile Exchange ended down 2.9 cents, or 0.8 percent, at $3.560 per million British thermal units, after trading between $3.509 and $3.583.
Chart traders noted prices over the last week have tested the $3.50 mark but have been unable to settle significantly below that level, setting it up as decent technical support.
Prices did try to bounce late last week, but many traders remained skeptical of any upside with inventories comfortable, production flowing at or near a record pace and no cold weather on the horizon to kick up heating loads.
The National Weather Service’s eight-to-14-day outlook on Monday called for normal or above-normal temperatures for nearly the entire nation. Traders noted that the forecast, if realized, would not generate much heating or cooling demand.
Traders viewed Thursday’s 87 billion cubic feet weekly inventory build as bearish, noting it came in well above market expectations in the 76 bcf area.
The U.S. Energy Information Administration report showed total gas inventories stood at 3.386 trillion cubic feet, about 5 percent below last year’s record highs at that time but nearly 1 percent above the five-year average.
Early estimates for Thursday’s storage report range from 82 to 100 bcf. Stocks gained 77 bcf a year earlier, while the five-year average rise for that week is 82 bcf.
In its monthly gross gas production report on Monday, the EIA said that output in July hit a record high of 74.52 bcf per day, easily eclipsing the previous record of 73.78 bcfd from November 2012 and about 1.8 bcfd, or 2.5 percent, above the same month last year.
The agency said it was not sure it will publish its weekly oil and natural gas inventory reports on Wednesday and Thursday in the event of a government shutdown.
Baker Hughes data on Friday showed the gas drilling rig count fell last week for a second straight week, dropping by 10 to 376.
But the count has risen in eight of the last 14 weeks, posting a six-month high of 401 just two weeks ago and stirring talk that new pipelines and processing plants could encourage producers to pump more gas into an already well-supplied market.
The EIA still expects U.S. gas production in 2013 to hit a record high for the third straight year.
In the ICE cash market, gas for Tuesday delivery at Henry Hub , the benchmark supply point in Louisiana, slipped 1 cent to $3.49, but late Hub differentials firmed to about 1-cent under NYMEX from a 5-cent discount on Friday.
Gas on Transco pipeline at the New York citygate climbed 22 cents to $3.66 on the warm midweek outlook, while Chicago was 15 cents higher at $3.64.