Oil Rigs Are the Biggest Concern for Natural Gas



Oil rig count

Since the record high of 1,606 in 2008, the natural gas rig count has fallen 89.5%. However, natural gas supplies continued to rise during this period. Rising oil production is responsible for the rise in natural gas supplies. Natural gas is often a by-product of oil production.


In the week ending November 10, 2017, the oil rig count rose by nine—the largest rise since June 30, 2017. Strong oil prices have spurred the rise. US crude oil producers could add more oil rigs to bolster their revenues from higher oil prices. On November 15, 2017, US crude oil (OIIL) active futures settled at $55.33 per barrel—3.5% below its highest closing price in 2017 of $57.35 per barrel on November 6, 2017.

So, natural gas supply can depend on oil prices. Strong oil production—indicated by rising oil rigs—could increase natural gas supplies, which could be a threat to natural gas prices. In the last part of this series, we’ll analyze the correlation between oil and natural gas prices.

The bearish link discussed above could also hamper natural gas–weighted stocks like Range Resources (RRC), Southwestern Energy (SWN), WPX Energy (WPX), and EQT (EQT). Recently, these energy stocks followed natural gas prices closely.

Natural gas rig count

In the week ending November 10, 2017, the natural gas rig count was unchanged at 169. In the last seven weeks, there hasn’t been a rise in the natural gas rig count. Since September 22, 2017, the natural gas rig count fell by 21 and natural gas prices rose 4.1%. A fall in the natural gas rig count might support natural gas prices.

Can inventories also impact natural gas prices? We’ll discuss this in the next part.

More From Market Realist