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Natural Gas: Will the Bullish Sentiment Continue?

PART:
1 2 3
Part 2
Natural Gas: Will the Bullish Sentiment Continue? PART 2 OF 3

How Oil Prices Could Spoil the Rise in Natural Gas

The natural gas rig count

In the week ended November 3, 2017, the natural gas rig count fell by three to 169. In the last six weeks, the natural gas rig count has fallen continuously. Since September 22, 2017, the natural gas rig count has fallen by 21. Over this period, natural gas prices rose 7.3%. So the decline in the natural gas rig count could be a positive development for natural gas prices.

How Oil Prices Could Spoil the Rise in Natural Gas

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US crude oil prices

Since 2008, the natural gas rig count has fallen 89.5%. But natural gas supplies rose significantly, underestimating the fall in the natural gas rig count. It could be due to the oil rig count since natural gas is often an outcome during oil’s extraction.

On November 8, 2017, US crude oil (OIIL) (UCO) active futures were only 0.9% below their highest closing price since July 2015. US oil drillers could profit from higher oil prices by increasing their production. So the current fall in the oil rig count could reverse. In the week ended November 3, 2017, the oil rig count fell by 8 to 729.

A higher oil-to-natural-gas price ratio could make US drillers extract oil first and then natural gas. That could make natural gas liquids development more profitable commercially than dry natural gas production.

US crude oil prices near their 2017 high could negatively impact natural gas–weighted stocks such as Range Resources (RRC), Chesapeake Energy (CHK), and Gulfport Energy (GPOR). Energy ETFs such as the Fidelity MSCI Energy ETF (FENY) and the Energy Select Sector SPDR ETF (XLE) may also see an impact.

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