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OPEC Could Pressure US Natural Gas Prices in 2018


Nov. 20 2020, Updated 4:41 p.m. ET

US natural gas rigs  

Baker Hughes, a General Electric (GE) company, released its US crude oil and natural gas rigs report on January 5, 2018. Natural gas rigs were flat at 182 between December 29, 2017, and January 5, 2018, according to Baker Hughes. US natural gas rigs rose 35% from a year ago. Oil and gas rigs increased because US crude oil (UCO) (DBO) prices were trading at three-year highs.

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Natural gas rigs 

US natural gas rigs rose 35% in the last 12 months, while US natural gas prices (UNG) fell 20% during this period. Meanwhile, US oil (UWT) (DWT) prices rose ~15.4% in the last 12 months.

US energy companies (XLE) (IEZ) increased their capital spending in 2017 as crude oil prices recovered to multiyear highs. Higher oil (USO) and gas (UNG) (UGAZ) prices would increase the US drilling activity. It benefits energy producers and drillers like Matador Resources (MTDR), WPX Energy (WPX), Transocean (RIG), and Schlumberger (SLB).

OPEC’s production cuts 

OPEC and Russia extended the ongoing crude oil production cuts until December 2018. The production cuts would drive crude oil prices higher. It would increase US oil and gas producers (XES) capital expenditure for 2018. As a result, it would increase US drilling activity and production. 

Crude oil prices and natural gas prices 

US natural gas rigs rose 8% in the last ten weeks, while US oil (USL) prices were at a three-year high. Natural gas is generally an associated product of crude oil. Higher oil (SCO) prices would increase US oil rigs, which would also drive natural gas production. Higher US natural gas production would pressure natural gas (DGAZ) (UNG) prices.

Next, we’ll discuss US natural gas supply and demand.


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