X
<

Why 2017 Could Be a Dull Year for Natural Gas Prices

PART:
1 2 3 4
Part 2
Why 2017 Could Be a Dull Year for Natural Gas Prices PART 2 OF 4

Rising Rigs: The Natural Gas Bear’s Best Friend

Natural gas rig count

In the week ended July 7, 2017, the natural gas rig count gained five and went to 189. Compared to the same period in 2016, the natural gas rig count has more than doubled. That’s a bearish factor that could cap gains in natural gas prices. Natural gas prices have risen just 9.2% in the past year.

Rising Rigs: The Natural Gas Bear’s Best Friend

Interested in FENY? Don't miss the next report.

Receive e-mail alerts for new research on FENY

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Oil rig count’s influence on natural gas production

The latest natural gas rig count level was 88.2% below its historic high in 2008. Despite such a large fall in the rig count, natural gas supplies rose significantly. The rise in the US oil rig count could explain it because natural gas is an associated product during oil extraction.

In the week ended July 7, 2017, the US oil rig count was 763. More importantly, in the trailing year, the US oil rig count has more than doubled as oil prices have been stronger since OPEC’s (Organization of the Petroleum Exporting Countries) production cut deal.

A more than 100% surge in natural gas and the oil rig count could increase natural gas supplies substantially. In 2017, natural gas consumption could fall, as we saw in Part 1 of this series. So gains in natural gas prices could be limited in 2017.

Rising rig counts and rig efficiency could negatively impact natural gas prices. Based on the EIA’s Drilling Productivity Report, on a year-over-year basis in July 2017, new well gas production per rig could see an increase of 19.7%.

Can natural gas impact the broader market?

In the short run, natural gas–weighted stocks have been less impacted by natural gas (BOIL) prices. So the interaction of energy constituents of equity indexes such as the S&P 500 Index (SPY-INDEX) and the Dow Jones Industrial Average (DIA-INDEX) with natural gas could be less. But in the long run, natural gas could influence these equity indexes because natural gas prices will finally drive the profits of their natural gas–producing constituents.

So the bearish factors for natural gas that we’ve looked at so far could also limit the upside for energy ETFs such as the Fidelity MSCI Energy ETF (FENY) and the Energy Select Sector SPDR ETF (XLE).

X

Please select a profession that best describes you: