uploads///Crude Oil Rigs Impacting Natural Gas Production

How Does the Oil Rig Count Impact Natural Gas Prices?



Natural gas rigs

On June 24, 2016, the natural gas (GASL) (BOIL) (DGAZ) (UGAZ) rig count was 90—a rise of four rigs from the previous week. The number of active natural gas rigs fell by 138 in the past year.

The number of active natural gas rigs was 228 a year ago. Notably, the natural gas rig count for the week ending June 24, 2016, was 94.4% lower than its peak in 2008. The rig count reached a historic high of 1,606 in 2008.

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Crude oil rigs and natural gas production

On June 24, the US crude oil (USO) (OIIL) rig count was 330—seven less than in the previous week. The number of active crude oil rigs has fallen by 298 over the past year.

Despite the fall in the number of natural gas rigs since August 2008, natural gas production continued to rise. This can be explained by the fact that natural gas is an associated product of crude oil extraction. Over the past ten years, natural gas production has moved more in tandem with the crude oil rig count than with the natural gas rig count.

Rising crude oil prices after the subprime mortgage crisis kept the number of oil rigs rising until June 2014. With increasing crude oil extraction, the natural gas production also kept rising. Increasing rig efficiency helped US natural gas companies produce more natural gas with fewer rigs.

Natural gas prices and stocks

This trend helped boost natural gas production and suppress natural gas prices, despite a fall in the number of active natural gas rigs. In this way, the crude oil rig count is an important factor for natural gas–weighted stocks such as Comstock Resources (CRK), WPX Energy (WPX), Southwestern Energy (SWN), EXCO Resources (XCO), Ultra Petroleum (UPL), and Antero Resources (AR).

In the next part of this series, we’ll discuss natural gas inventories.


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