Meanwhile, Baker Hughes reported that the number of rigs drilling for natural gas in the U.S. fell by one to 222 last week.
Natural Gas Rig Count
Bottom Line: The latest inventory data from the EIA were bearish, as the inventory deficit against the five-year average fell from 40 to 25 bcf and the inventory surplus against a year-ago decreased from 723 to 721 bcf.
Inventory builds increased significantly week-over-week to 112 bcf, up from 92 bcf in the previous week. That could be due to normal fluctuations in supply and demand. Or it could be because the run-up in prices from $2.50/mmbtu to more than $3 reduced demand, particularly coal-to-gas switching demand by utilities.
In either case, the natural gas market remains severely oversupplied, and even with the benefit of a nearly 4 bcf/d or additional power demand (from coal-to-gas-switching), injections are keeping pace with last year's record levels.
Of course, if inventory builds continue at this pace, they will peak more than 700 bcf above where they were last year in November. That would equal about 4,300 bcf, far above the previous record level of 3,929 set in 2012.
The weight of those inventories, along with ever-increasing natural gas production, will keep prices from rallying much above $3/mmbtu in the next several months, barring a severe heat wave.
On the downside, there is plenty of room for natural gas to fall, with the retest of the $2.50 low likely at some point. If summer temperatures turn out to be mild, or even normal, prices could briefly fall even further, to the $2 range.