FXstreet.com (Barcelona) - The glut in the United States’ natural gas market continues to persist, however the past month has seen increasing signs that the supply-side of the market is slowly responding to the pricing signals evident in early 2012. According to Baker Hughes, the US natural gas rig count was down to 505 as of July 27, the lowest level since July 1999 and down from more than 900 in mid-October.

Despite a sharp drop in drilling activity however, production continues to surge ahead. According to the most recent estimates, natural gas production in April increased 0.35% after accounting for seasonal influences. “Similarly, producing at a rate of more than 2050 Bcf means that production remains well above the country’s capacity to absorb it, whether through exports or domestic consumption.” writes the NAB Analyst Team.

According to the team, “Looking ahead, we expect production to soften through the remainder of the year, but still remain well above the capacity of the US energy market to absorb it, meaning that stocks are likely to continue being added to.” According to recent EIA forecasts, US natural gas production is forecast to lift 4.2% in 2012 as declining production from the less profitable dry natural gas plays is offset by liquids-rich areas such as Eagle Ford and parts of the Marcellius Shale.