Out Fox The $treet

Don't look now, but the EIA is reporting that natural gas inventories are close to the 5-year averages. After record inventory stocks over the last year, the current amounts are 21% below the levels of last year and nearing the averages. While the 1,876 Bcf in storage is still 9.5% above the 5-year average, the numbers are skewing towards the middle of the range. A few more months of reductions should just about do the trick. See the chart below: With rigs drilling for natural gas near record lows, one has to assume the numbers will eventually overshoot before exploration companies back any moves to increase production.

Investors need to keep an eye on the plunging nat gas inventories. The EIA reported today that inventories dropped a huge 201 Bcf for the week ending January 4th. The inventory levels are now below those of last year. The price of nat gas remains low so that should continue encouraging the usage while at the same time E&P firms are not drilling more wells. This dual situation could eventually lead to much lower supplies and higher prices. Disclosure: Please review the disclaimer page for more details. 

What inventory build? The consistent mantra of the GDP rally in Q1 and over the last 3-4 quarter has been that inventories were being rebuilt. Now maybe a smaller decline in inventories helped GDP, the reality is that inventories have not seen but one major inventory increase in the last 2 years. Any number over 50 shows an actual increase in inventories. A lot of the focus has actually been on a higher number then the prior month such as a 45 versus a 39. * Thanks to Seekingalpha.com and Chartfacts.com for providing the ability to chart economic data now.

Good video from John Ryding, chief economist at RDQ Economics and CNBC's Steve Liesman. Great discussion about the huge inventory liquidation the economy has seen in the first half of '09 and the positive impacts it will likely have on Q3 and Q4 GDP numbers. Anybody against the V shaped recovery just isn't paying attention to the numbers. I agree though that the economy still has structural issues and the Obama administration to deal with to have a robust economy going into 2010. The long term play is still BRIIC markets, but for the rest of the year domestic plays should bounce back nicely.