July natural gas futures fell hard after the release of inventory data more bearish than traders were expecting. The Energy Information Administration (EIA) reported that for the week ended June 12 natural gas inventories increased by 114 Bcf, well ahead of market expectations in the 105 Bcf range.

The market reaction was swift. Just prior to the release of the data July futures were at $4.240, but as soon as the report was released July peeled off more than 10 cents and traded as low as $4.069 just after 11 a.m. EDT. For the session July futures dropped 16 cents to close at $4.093 and August fell 14.6 cents to $4.278. July crude oil rose 34 cents to $71.37/bbl.

Natural gas traders see a resilient market that seems able to withstand an onslaught of unfavorable news. “When you look at today’s storage number and the news reports that natural gas reserves are 35% higher than previously estimated, you have a short-term bearish factor and a long-term bearish factor, yet we are only down 16 cents and still above $4,” said a Washington, DC-based broker.

According to a report by NGI, which analyzed the data, the Colorado School of Mines showed Thursday that estimated gas reserves in 2008 had increased to 2,074 Tcf, up from 1,532 Tcf in 2006, the last time the estimate was made (see related story).

“We are starting to bet more and more bullish on natural gas for you have two major bearish stories and the market is not really being driven below $4. What else do you want? You have 35% more supply and how come the market is not getting crushed? The resilience in this market is pretty impressive,” the broker said.

He added that from a technical perspective if natural gas should break out of its present triangle consolidation pattern, “a general target would be in the $5.600-5.700 range.”

For the moment the stout inventory build shows that a decreasing rig count has yet to make an impact on production. Last Friday Baker Hughes reported that the number of rigs drilling for natural gas fell 15 to 685, down by more than half since the peak of 1,606 was tallied last September (see https://intelligencepress.com/features/bakerhughes/). Some believe it’s a bit early to try and figure out when the falling rig count may show up in lower inventory builds.

“Since September, rig counts have been falling, and they are now roughly half the level seen nine months ago,” said Peter Beutel, president of Cameron Hanover. “Many market observers are now trying to handicap exactly when these cutbacks in drilling operations will start to make themselves felt in terms of daily production. There are a number of elements making this process difficult, first, and probably premature, second. We do not believe that the effect will be felt, yet. Once it starts, though, it could become a major factor rapidly, we would imagine.”

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