The Oil Rig Effect on Natural Gas Prices



The natural gas rig count

Last week (ended October 20, 2017), the natural gas rig count fell by eight to 177. The natural gas rig count has fallen by 13 over the past four weeks since September 22, 2017.

During this period, natural gas futures have risen 1.1%. The fall in the natural gas rig count could be one of the factors behind the rise in natural gas prices.

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Oil prices and natural gas production

Since the record high of 1606 in 2008, the natural gas rig count has fallen ~89%. But over this time, natural gas supplies have risen significantly. It could be because of relatively stronger oil prices and surging oil rigs. Often, natural gas is produced during oil drilling.

Last week, the oil rig count fell by seven to 736. The short-term downturn in the oil rig count may help natural gas prices rise because natural gas supplies may fall.

However, new-well gas production per rig could rise by 1% in November 2017 on a month-over-month basis. Rising natural gas rig efficiency is another important factor that could impact natural gas supplies.

Natural gas-weighted stocks like Gulfport Energy (GPOR), Rice Energy (RICE), and Range Resources (RRC) stand to benefit, given their correlations with natural gas futures. Strong natural gas prices could also benefit energy ETFs like the Fidelity MSCI Energy ETF (FENY) and the Energy Select Sector SPDR ETF (XLE).


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