uploads/2018/01/image016.png

Natural Gas Longs: Here’s Why You Should Watch Oil Rigs

By

Updated

Natural gas supplies

On January 12, 2018, the natural gas rig count was 88.4% less than its historic high of 1,606 in 2008. But natural gas supplies have ignored the fall in the natural gas rig count since 2008. That’s due to a higher oil rig count. Natural gas is often produced while extracting oil from the US shale regions.

In the week ended January 12, 2018, the US oil rig count rose by ten to 752. That same day, US crude oil futures were at their three-year high. So based on the relationship between oil prices and the rig count, the US oil rig count could rise further.

The rise in the oil rig count could enhance natural gas supplies, which could be a concern for natural gas prices. On January 12, 2018, natural gas prices were at their highest closing level since November 13, 2017.

Natural gas–weighted stocks such as Chesapeake Energy (CHK), EQT (EQT), and Gulfport Energy (GPOR) could be in trouble with the downside in natural gas prices, based on their high price correlations with natural gas.

Article continues below advertisement

Natural gas rig count

In the week ended January 12, 2018, the natural gas rig count rose by five to 187. The current level of active natural gas rigs is 38% higher than last year’s level. On a year-over-year basis, natural gas prices have fallen 8.5%. So a rising natural gas rig count is also a threat to natural gas (GASL) (GASX) prices.

Advertisement

More From Market Realist