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Why US Natural Gas Traders Are Tracking OPEC’s Production

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Nov. 20 2020, Updated 11:59 a.m. ET

US natural gas rigs 

Baker Hughes, a GE company, released its weekly US natural gas rigs report on January 19, 2018. Natural gas rigs increased by two to 189 on January 12–19, 2018. US natural gas rigs increased 1.1% week-over-week and 33.1% year-over-year. Oil and gas rigs increased because US crude oil (USO) (UWT) and natural gas prices were trading near multi-month highs. It benefits funds like the Energy Select Sector SPDR ETF (XLE), which has exposure to oil and gas companies.

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Natural gas prices 

US natural gas (UNG) (FCG) prices averaged $2.55 per MMBtu in 2016 and $2.99 per MMBtu in 2017. Meanwhile, US oil (DWT) (UCO) prices increased ~12.4% in 2017 from the previous year.

As a result, US energy companies (RYE) (XES) increased their capital spending in 2017. Higher oil and gas (GASL) prices favor energy producers and drillers like Transocean (RIG), Stone Energy (SGY), Halliburton (HAL), and Schlumberger (SLB).

OPEC’s production cuts  

Russia and OPEC extended their current production cuts until December 2018. On January 21, 2018, Saudi Arabia’s energy minister said that OPEC could extend the production cuts in 2019 too. Brent oil (BNO) prices have risen from $45 per barrel in June 2017 to ~$70 per barrel this month partly due to the production cuts.

Another production cut extension could drive crude oil prices higher. It could increase US energy companies’ capital expenditure. As a result, it would increase US drilling and production. 

Crude oil prices 

US natural gas rigs are near a four-month high. Natural gas is usually an associated product of crude oil. Higher oil (DBO) prices would increase US oil rigs, which would increase US natural gas supplies. Higher US natural gas supplies would pressure natural gas (DGAZ) (UGAZ) prices.

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

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