HOUSTON (Dow Jones)--Natural gas futures ended lower Friday on record high levels of natural gas in storage.

Natural gas for November delivery on the New York Mercantile Exchange settled 19.3 cents, or 3.89%, lower at $4.77 a million British thermal units. The contract sank as low as $4.757/MMBtu in earlier trading.

Natural gas prices have faced pressure from swelling natural gas storage levels, which are expected to approach capacity before winter heating season begins.

Natural gas in U.S. storage for the week ended Oct. 2 stands at an all-time high of 3.658 trillion cubic feet - about 15% higher than both last year and the five-year average, according the U.S. Energy Information Administration.

"This is a market that is not getting much help on the fundamental side. I thought yesterday's storage report was bearish," said Jim Ritterbusch, president of the energy advisory firm Ritterbusch and Associates.

On Thursday, the EIA reported that storage increased by 69 billion cubic feet, topping analyst estimates and falling just shy of the five-year average injection for this time of year of 70 billion cubic feet.

Natural gas supplies have remained robust despite the sharp downturn in domestic drilling activity.

The number of rigs drilling for natural gas in the U.S. has fallen by more than half over the last year and now stands at 726 rigs, oilfield services provider Baker Hughes Inc. (BHI), said Friday. But most of the cutbacks in drilling have been in conventional vertical rigs that producers use to drill straight down into gas reservoirs. The number of vertical rigs has fallen by about 60%, while the number of horizontal rigs is down by much less.

Horizontal drilling has declined by 26% as producers have continued to exploit prolific gas fields known as shales. A shale well, on average, produces about twice the output of a conventional well, and shale wells have helped offset the effect lower drilling activity has had on supplies.

Shales are dense rock formations that producers have learned to tap with new drilling technology. Shale formations, such as the Barnett Shale in Texas, have been largely credited with fueling a boom in domestic gas production. Producers must drill down to the rock, then horizontally through the formation, to break it apart and release the gas trapped within.

"The shuttering of production at the fringe (less productive, low return plays) is skewing the drop in the Baker Hughes count," Stephen Schork, editor of energy advisory newsletter The Schork Report, wrote in a note to clients.

Despite robust natural gas supplies, prices were receiving some support Friday from forecasts calling for cold weather in key natural gas demand centers over the next few weeks.

The National Weather Service forecast for Oct. 16-22 calls for below-normal temperatures across the Midwest, the mid-Atlantic and parts of the Northeast.

The cold temperatures are expected to spur some early demand for natural gas used to heat homes and businesses, analysts said.

"The normally lost, weekend industrial demand, will be offset by people sitting in their homes this weekend with thermostats turned up," John Kilduff, an analyst with MF Global in New York, wrote in a note to clients.


FUTURES SETTLEMENT NET CHANGE
Nymex Nov $4.770 -19.3c
Nymex Dec $5.590 -14.9c
Nymex Jan $5.907 -13.8c

CASH HUB RANGE PREVIOUS DAY
Henry Hub $3.77-$4.07 $3.95-$4.35
Transco 65 $3.79-$3.96 $4.02-$4.36
Tex East M3 $4.10-$4.36 $4.35-$4.75
Transco Z6 $4.15-$4.40 $4.49-$4.77
SoCal $3.85-$4.20 $4.05-$4.57
El Paso Perm $3.80-$3.93 $3.78-$4.40
El Paso SJ $3.66-$3.85 $3.90-$4.37
Waha $3.80-$3.89 $3.97-$4.38
Katy $3.75-$3.92 $4.00-$4.27


-By Jason Womack, Dow Jones Newswires; 713-547-9201; jason.womack@dowjones.com