By Scott DiSavino

Aug 26 (Reuters) -U.S. natural gas futures fell about 2% to a three-week low on Monday on forecasts for lower demand next week than previously expected.

Energy analysts also noted the tremendous oversupply of gas still in storage has kept a lid on gas prices all year.

There was still about 12% more gas in storage than normal for this time of year even though weekly builds, including a rare decline during one week in August, have been smaller than normal in 13 of the past 14 weeks. EIA/GAS NGAS/POLL

That price decline occurred despite forecasts for hotter-than-normal weather over the next two weeks that should prompt power generators to burn more gas than usual to keep air conditioners humming into mid-September.

Front-month gas futures NGc1 for September delivery on the New York Mercantile Exchange were down 4.1 cents, or 2.0%, to $1.981 per million British thermal units (mmBtu) at 8:55 a.m. EDT (1255 GMT), putting the contract on track to close at its lowest price since Aug. 5.

That also put the contract down for a fifth day in a row for the first time since late July.

Those declines boosted the premium of futures for October over September NGU24-V24 to 17 cents per mmBtu, a record high for a second day in a row.

Even though the November-March heating season is months away, the market is already showing signs of giving up on the possibility of price spikes from extreme cold this winter with the premium of futures for March over April NGH25-J25 down to a record low of 12 cents per mmBtu.

In the spot market, pipeline constraints caused next-day gas prices at the Waha hub NG-WAH-WTX-SNL in the Permian Shale in West Texas to average in negative territory again for a record 29th time this year.

SUPPLY AND DEMAND

Producers increase and decrease output in reaction to prices, but it usually takes a few months for changes in drilling activity to show up in the production data.

Average monthly spot prices at the U.S. Henry Hub benchmark NG-W-HH-SNL in Louisiana hit a 12-month high of $3.18 per mmBtu in January before dropping to a 44-month low of $1.72 in February and a 32-year low of $1.49 in March, according to Reuters and federal energy data.

In reaction to that price plunge, producers cut average monthly output from 106.0 billion cubic feet per day (bcfd) in February to 102.7 bcfd in March, 101.5 bcfd in April, and a 17-month low of 101.3 bcfd in May, according to federal energy data.

Winter storms at the start of the year caused output to fall from a record 106.3 bcfd in December to 103.6 bcfd in January.

As monthly spot Henry Hub prices increased to $1.60 per mmBtu in April, $2.12 in May, and $2.54 in June, some producers, including EQT EQT.N and Chesapeake Energy CHK.O, started to increase drilling activities, boosting output to 101.0 bcfd in June and 103.4 bcfd in July.

But with average spot Henry Hub prices back down to $2.08 per mmBtu in July and $2.00 so far in August, analysts said output would likely decline as some producers reduce drilling activities again.

Financial firm LSEG said gas output in the U.S. Lower 48 U.S. states has slid to an average of 102.4 bcfd so far in August, down from 103.4 bcfd in July.

LSEG forecast average gas demand in the Lower 48, including exports, will slide from 105.2 bcfd this week to 102.8 bcfd next week. The forecast for this week was higher than LSEG's outlook on Friday, while its forecast for next week was lower.

Reporting by Scott DiSavino; Editing by Paul Simao

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