NEW YORK (Dow Jones)--Natural gas futures ended lower Friday on data that indicated gas producers aren't reining in drilling activity, despite low prices.

Natural gas for June delivery on the New York Mercantile Exchange settled 7.1 cents lower, or 1.73%, at $4.035 a million British thermal units after reaching a low of $4.02/MMBtu earlier in the day.

Gas futures slid after oil-field services company Baker Hughes Inc. (BHI) reported Friday that the number of rigs drilling for natural gas in the U.S. last week was 969, an increase of 18 rigs from last week. The jump in the gas rig count signals that producers aren't scaling back output, despite low prices for the fuel.

The rising rig count "kind of focused the market's attention on the fact that there really are weak fundamentals here," said Gene McGillian, an analyst with Tradition Energy in Stamford, Conn.

Gas output from hard-to-reach rock formations known as shales has remained robust over the past several months, placing downward pressure on prices. Many shale-gas producers hold leases that require them to drill by a certain date.

Meanwhile, gas inventories have climbed over the past several weeks as moderate spring temperatures and a glut of shale-gas supply lead to large injections of gas into underground storage facilities each week. Total gas in U.S. storage as of May 14 was 2.165 trillion cubic feet, about 16.6% above the five-year average for the same week and 3.5% above last year's level for that week.

Commodity Weather Group, a Bethesda, Md., private forecaster, was predicting above-normal temperatures across most of the eastern U.S. from May 26 to May 30. Warmer-than-normal temperatures were also expected across much of the east from May 31 to June 4. The warm weather could spark some late-spring cooling demand, but not enough to place significant upward pressure on gas prices.


-By Christine Buurma, Dow Jones Newswires; 212-416-2143; christine.buurma@dowjones.com