HOUSTON (Dow Jones)--Natural-gas futures ended higher Friday as traders squared their books ahead of the weekend, buying back previously sold contracts after price declines a day earlier.

Natural gas for October delivery on the New York Mercantile Exchange settled 32 cents, or 9.25%, higher at $3.778 a million British thermal units. The contract - which rose as high as $3.838/MMBtu in earlier trading - erased Thursday's losses.

Front-month natural-gas futures fell 8% on Thursday as traders booked profits of a recent runup in prices. Natural gas hit a 7 1/2-year low earlier this month, reaching $2.409/MMBtu. Prices then shot higher as traders, who bet on falling prices, bought back contracts.

Larry Young, a trader with Infinity Futures in Chicago said traders were adjusting their positions Friday.

"I think this is really squaring up ahead of next week," he said.

Analysts also pointed to Thursday's weekly update on natural-gas storage that indicated the gas market was beginning to tighten. Prices have remained under pressure as fuel stockpiles swelled and demand for natural gas, particularly among industrial consumers, remained tepid.

The U.S. Energy Information Administration reported Thursday that natural-gas storage levels grew by 66 billion cubic feet. The injection fell short of analyst expectations for an injection of 76 billion cubic feet, according to the average of estimates in a Dow Jones Newswires survey.

Storage levels for the week ended Sept. 11 stood at 3.458 trillion cubic feet - 16.7% higher than last year and 16.4% above the five-year average.

"Gas prices have regained their footing and our thinking is that it is quite appropriate that they should. Injections are diminishing," Mike Fitzpatrick, an analyst with MF Global in New York, wrote in a note to clients on Friday.

The number of rigs drilling for natural gas has fallen by more than half over the last year as producers have pulled back on activity to cope with natural-gas prices that are still down more than 70% from last summer's highs above $13/MMBtu.

The number of rigs drilling for natural gas in the U.S. stood at 705, an increase of six rigs from the previous week, according to data from oil field services provider Baker Hughes Inc. (BHI). The rig count peaked in September 2008 at 1,606 rigs.

The drop in drilling activity is expected to bolster natural-gas prices once the economy recovers and demand for the fuel improves, analysts said.


FUTURES SETTLEMENT NET CHANGE
Nymex Oct $3.778 +32.0c
Nymex Nov $4.655 +20.0c
Nymex Dec $5.323 +20.8c

CASH HUB RANGE PREVIOUS DAY
Henry Hub $3.05-$3.27 $3.40-$3.58
Transco 65 $3.08-$3.23 $3.43-$3.53
Tex East M3 $3.20-$3.50 $3.64-$3.80
Transco Z6 $3.28-$3.44 $3.63-$3.77
SoCal $3.39-$3.62 $3.65-$3.89
El Paso Perm $3.11-$3.26 $3.48-$3.58
El Paso SJ $3.16-$3.21 $3.48-$3.59
Waha $3.13-$3.27 $3.44-$3.57
Katy $3.20-$3.31 $3.38-$3.56

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