Adds latest prices

By Scott DiSavino

May 24 (Reuters) -U.S. natural gas futures dropped about 5% on Friday to a one-week low on forecasts for lower demand in two weeks, an ongoing oversupply of gas in storage and signs that recent high prices have prompted drillers to stop cutting output and start pulling more gas out of the ground.

Prices dropped despite forecasts for more demand next week than previously expected and a demand-boosting heat wave expected to blanket Texas over the long Memorial Day weekend.

Analysts forecast gas stockpiles were about 27% above normal levels for this time of year. EIA/GAS NGAS/POLL

Front-month gas futures NGc1 for June delivery on the New York Mercantile Exchange fell 13.7 cents, or 5.2%, to settle at $2.520 per million British thermal units, their lowest close since May 16.

For the week, the front-month fell about 4% after it soared about 63% over the prior three weeks.

In the spot market, power prices in Texas soared for Friday with electric demand expected to break the record for the month of May for a second time this week ahead of the long weekend as homes and businesses crank up air conditioners to escape a heat wave.

SUPPLY AND DEMAND

Financial firm LSEG said gas output in the Lower 48 U.S. states fell to an average of 97.5 billion cubic feet per day (bcfd) so far in May, down from 98.2 bcfd in April. That compares with a monthly record of 105.5 bcfd in December 2023.

On a daily basis, however, output was up about 1.5 bcfd since hitting a 15-week low of 96.2 bcfd on May 1. Energy traders said that increase was a sign that the 63% gain in futures prices over the past three weeks prompted some drillers to start producing more gas.

Overall, U.S. gas production was still down around 8% so far in 2024 after several energy firms, including EQT EQT.N and Chesapeake Energy CHK.O, delayed well completions and cut back on other drilling activities after prices fell to 3-1/2-year lows in February and March.

EQT is the biggest U.S. gas producer and Chesapeake is on track to become the biggest producer after its merger with Southwestern Energy SWN.N.

It takes time for changes in drilling activity to show up in the data. U.S. energy firms this week actually cut the number of gas rigs operating to just 99, the lowest since October 2021, according to data from U.S. energy services company Baker Hughes BKR.O.

Meteorologists projected weather across the Lower 48 states would be warmer than normal from May 24-28 and then again from June 3-8 with a near normal stretch in the middle from May 29-June 2.

LSEG forecast gas demand in the Lower 48, including exports, would hold near 92.7 bcfd this week and next before easing to 92.2 bcfd in two weeks. The forecast for next week was higher than LSEG forecast on Thursday.

Gas flows to the seven big U.S. LNG export plants rose from an average of 11.9 bcfd in April to 12.7 bcfd so far in May with the return of Freeport LNG's 2.1-bcfd plant in Texas.

That LNG feedgas, however, was still down from the monthly record of 14.7 bcfd in December due to ongoing spring maintenance at Kinder Morgan's KMI.N Elba Island in Georgia and several plants in Louisiana, including Cameron LNG, Cheniere Energy's LNG.N Sabine Pass and Venture Global's Calcasieu Pass.

Reporting by Scott DiSavino in New York
Editing by Susan Fenton and Matthew Lewis

For gas data on LSEG's Eikon type ENERGY in the search bar and then go to the GAS drop down and the NORTH AMERICA drop down.

For Interactive Map, type 'Interactive Map' in the box at upper left of the Eikon terminal

For graphics on Baker Hughes rig counts, see: http://graphics.thomsonreuters.com/15/rigcount/index.html

For next-day SNL U.S. gas prices, see: 0#SNL-NG

For next-day SNL U.S. power prices, see: 0#SNL-PWR

For U.S. natgas price and storage polls, see: NGAS/POLL

For U.S. nuclear power outages, see: NUKE/

For U.S. Northwest hydro power report, see: NWRFC

For U.S./Canada natural gas rig count vs Henry Hub futures price, see: http://tmsnrt.rs/2eT9k44

For the U.S. natural gas speed guide, see: USGAS

For the U.S. power speed guide, see: USPOWER

To determine CFTC managed money net position add (NYMEX Henry Hub options and futures combined 3023651MNET) plus (ICE Henry Hub options and futures combined 3023391MNET divided by four) plus (NYMEX Henry Hub swaps options and futures combined 303565BMNET divided by four) plus (NYMEX Henry Hub penultimate gas swaps 303565CMNET divided by four)

NYMEX Henry Hub options and futures combined 0#3CFTC023651

NYMEX Henry Hub futures only 0#1CFTC023651

ICE Henry Hub options and futures combined 0#3CFTC023391

NYMEX Henry Hub swaps options and futures combined 0#3CFTC03565B

NYMEX Henry Hub Penultimate gas swaps 0#3CFTC03565C