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Breather in the Rig Count Could Support Natural Gas Prices

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Natural gas rigs data

In the week ending July 21, 2017, the natural gas rig count fell by one and was at 186. Compared to the same time last year, the natural gas rig count has risen more than 2x, while natural gas active futures only rose 7.7%. Interestingly, the natural gas rig count has stalled in the last three weeks—a sign that could encourage natural gas bulls.

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Oil’s role in natural gas production

Since its record high in 2008, the natural gas rig count has fallen 88.4%. However, natural gas production has risen steadily since 2008. It could be explained by the large rise in US crude oil production, particularly from the seven major shale regions. Natural gas is sometimes an associated product during oil extraction.

Based on the latest EIA data, natural gas production in the seven major shale regions in the US could rise to 52,858 million cubic feet per day in August 2017—the highest level since 2007.

Last week, the oil rig count fell by one to 764. The oil rig count has more than doubled since the same period in 2016. Relatively profitable oil (USO) prices supported the rise in the US oil rig count. According to the EIA, new-well gas production per rig could rise 26.5% on a year-over-year basis in August 2017.

More importantly, like the natural gas rig count, the oil rig count has also consolidated in the last three weeks—a potentially positive development for natural gas prices.

The above development could mean a bullish turnaround for US natural gas (UNG) prices and US natural gas producers (XOP) (XLE) like Antero Resources (AR) and Southwestern Energy (SWN).

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