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Why Oil Rigs Could Hinder Natural Gas’s Recent Gains

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Dec. 4 2020, Updated 10:42 a.m. ET

Natural gas rig data

In the week ended July 14, 2017, the natural gas rig count fell by two to 187. However, in the trailing year, the natural gas rig count has more than doubled, while prices have risen only 12.5%.

More active rig drilling for natural gas could eventually boost the natural gas supply. Rising supplies could be bad for natural gas long bets.

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Oil rigs troubling natural gas prices

Natural gas prices have plummeted since 2008. The fall in prices was met with a fall in the natural gas rig count. However, during this period, the oil rig count has risen significantly. Rising oil production can enhance natural gas supply.

Last week, the crude oil rig count rose by just two. However, since its low of 316 in the week ended May 27, 2016, the oil rig count has risen by 449, according to the latest data.

Further, in August 2017, new-well gas production per rig could rise 26.5% compared to its level in August 2016. This estimate was released by the EIA (U.S. Energy Information Administration) on July 17, 2017.

Both the upsurge in oil (USO) and the natural gas rig count and the upsurge in rig efficiency could hinder the recovery in natural gas prices. Moreover, these upsurges could also negatively affect US natural gas producers (XOP) (DRIP) such as EQT (EQT) and Rice Energy (RICE) due to their negative effects on natural gas prices.

In the next article, we’ll focus on natural gas inventory data.

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