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Oil Rig Count: A Hurdle for Higher Natural Gas Prices

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Natural gas rig count

The natural gas rig count was at 194 in the week ending March 30, 2018—four more than the previous week.

In 2008, the natural gas rig count made a record high of 1,606. From the record level in 2008 until March 30, 2018, the natural gas rig count fell 87.9%. Between January 2008 and December 2017, US natural gas marketed production rose 47.3% based on the EIA’s monthly data.

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Natural gas supplies

Rising oil production could be behind the rise in natural gas supplies. Usually, natural gas is a by-product of US shale oil production. So, the rising oil rig count could be important for natural gas supplies. Between January 4, 2008, and March 30, 2018, the oil rig count more than doubled. Since January 2008, natural gas active futures have fallen 65.6% to date.

In the week ending March 30, 2018, the oil rig count fell by seven to 797. Based on the relationship between oil prices and the oil rig count, the oil rig count might rise until July 2018.

Impact on energy stocks and energy ETFs

More upside in the oil rig count could pressure natural gas, which might be a concern for investors in natural gas–weighted stocks like Chesapeake Energy (CHK) and Southwestern Energy (SWN). On March 27–April 3, 2018, Chesapeake Energy and Southwestern Energy fell 1% and 1.4%. Natural gas May futures fell 0.6% during this period. Since January 2008, Chesapeake Energy and Southwestern Energy have fallen 92.3% and 85.6% to date. Natural gas active futures have fallen 65.6% since January 2008.

In the trailing week, ETFs like the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) rose 0.3% and 0.2%. These ETFs hold natural gas producer stocks. The ETFs could be impacted if the oil rig count has a negative impact on natural gas prices.

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