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Why Do Falling Prices Mirror the Natural Gas Rig Count?

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US Natural gas rig count

Natural gas prices fell more than 5% so far in November 2015. However, prices fell more than 9% in the week ending November 20, 2015, compared with the week before. In November 2015, the total natural gas rig count fell by four to 193 as per Baker Hughes (or BHI). In other words, US natural gas prices and the rig count moved in the same direction in November 2015. However, the natural gas rig count was flat or unchanged at 193 for the week ending November 20, 2015, compared with the previous week.

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Trend in the natural gas rig count

In the last ten weeks, natural gas rigs fell by three. The recent trend in natural gas rigs has been almost flat. However, over the long term, natural gas and prices trend mirror each other. The current natural gas rigs are 45.6% lower than last year’s level of 355. Likewise, natural gas prices also fell more than 30% in the last one year.

Natural gas prices fell due to the oversupply concerns. The fall in prices led then led to a fall in drilling activity. In turn, this fall in drilling activity affects drillers such as Baker Hughes, Schlumberger (SLB), Superior Energy Services (SPN), and Halliburton (HAL). The slowing natural gas rigs and prices suggest that energy producers are less optimistic about stable or higher prices for natural gas in the short term. The EIA[1. U.S. Energy Information Administration] projects that natural gas production could fall by 394 million cubic feet per day in December 2015 over November 2015 in its monthly report on drilling.

The volatility in the energy market impacts ETFs such as the PowerShares DB Energy ETF (DBE) and the PowerShares DWA Energy Momentum ETF (PXI).

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