Rig count declines
Baker Hughes reported that natural gas rigs dropped by eight rigs for the week ending April 17, 2015. There are 217 total active natural gas rigs—compared to 316 last year. The rig count dropped by 3.5% weekly—down 31% YoY (year-over-year). A fall in the rig count never tells the true story of the actual production decline.
In the meantime, Reuters’ surveys suggest that weather will be normal in the lower 48 US states over the second half of April 2015. This means that lower gas demand might put more pressure on gas prices in the weeks ahead.
Weekly gas flows drop
Industry estimates show that gas flows declined in the residential, power plants, and industries segment last week. In contrast, natural gas storage estimates in the lower 48 US states continued to increase week-over-week.
The EIA (U.S. Energy Information Administration) said that weekly gas stockpiles increased to 1,539 Bcf (billion cubic feet)—compared to 1,476 Bcf for the week ending April 10.
Increasing supply and high inventories might test the support of $2.50 per MMBtu (British thermal units in millions) for natural gas prices. The support is formed from the lows of April 10 and 14. In contrast, bullish traders could see the nearest resistance of $2.75 per MMBtu. Gas prices hit this mark multiple times in March 2015.
Gas prices settled below their 20-day moving average of $2.65 per MMBtu. May and June natural gas volumes are also below the five-day and ten-day average volume.
The Spider Oil and Gas (XOP) and the Energy Select Sector SPDR ETF (XLE) mirrored the natural gas price movements. They fell by 1.81% and 0.73%, respectively, on Friday’s trade. Energy producers like WPX Energy (WPX), Antero Resources (AR), and Exco Resources (XCO) have a natural gas production mix that’s more than 75% of their production portfolio. They account for 3.01% of XOP. Lower gas prices impact gas producers’ margins.