NEW YORK (TheStreet) -- Natural gas dropped to a five-day low and the middle of tight trading range after a natural gas inventory report showed that stockpiles increased last week.

Natural gas for July delivery was tumbling 3.2% to $4.433 per million British thermal units, earlier sinking to a five-day low of $4.423.

"Natural gas was smack bang in line with the consensus -- the market is taking it very bearishly," said Summit Energy Analyst Matt Smith of the U.S. Energy Information Administration's (EIA) natural gas storage report.

Deal Shows Natural Gas' Inexorable March

The bigger fundamental picture still points to near record production for natural gas, strong supply and moderating temperatures in key regions, said Smith.

"A rejection of a move above $5 brought a serious bout of profit-taking," Smith said. "Each time we test four bucks, we see a bounce, but a strong selloff around $5."

Natural gas has been trading between $4 and $5 for the last month or so.

Natural gas is likely to spike due to extreme summer heat and potential hurricane activity in the Gulf Coast area, where U.S. natural gas reserves are concentrated, but that isn't expected for weeks, the analyst pointed out. The peak of the hurricane season is around Sept. 9, and extreme heat is unlikely to take place until July and August.

The EIA reported on Thursday an increase of natural gas stockpiles of 69 (billion cubic feet) Bcf for the week ended June 10, to 2,256 Bcf. Analysts, on average, expected an injection of 70 bcf.

Standard & Poor's analyst Michael Kay said he's not forecasting much of a price increase for natural gas for 2012.

"Over the last five, six years, we've gone from importing LNG (liquefied natural gas) to now looking to exporting. We're swimming in natural gas because of all the shale

resources."

The U.S. is the biggest producer of natural gas. Kay notes that the recent pullback of natural gas rig counts and increase in oil rig counts doesn't necessarily mean that natural gas production has fallen significantly -- given that natural gas is often a byproduct of oil drilling.

"A lot of the people are banking on the U.S. to export ... but now that we have this huge resource base, are we just going to start exporting it?" Kay worries that shipping away huge domestic supplies of natural gas would be counterproductive to the U.S. desire for energy independence. "We can make money off of it, but if we start giving it away, what happens to our future supply?"

Natural gas stocks were mostly falling.

Kinder Morgan Energy Partners

(KMP)

was falling 0.6% to $70.65;

BP

(BP) - Get Report

was down 1.1% to $41.50;

Devon Energy

(DVN) - Get Report

was flat at $77.06,

Newfield Exploration

(NFX)

was lower by 0.7% at $63.58;

Cheniere Energy Partners

(CQP) - Get Report

was behind by 0.2% at $16.65;

Cheniere Energy

(LNG) - Get Report

was tumbling 3.4% to $8.03, and

EOG Resources

(EOG) - Get Report

was down 0.6% at $102.29.

Shares of

Southern Union

( SUG) were surging by 17.6% to $33.22 after agreeing to be acquired by

Energy Transfer Equity

(ETE)

for $7.9 billion.

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-- Written by Andrea Tse in New York.

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