US natural gas rigs
Baker Hughes, a GE company (BHGE) released its weekly US natural gas rig count report on March 29, 2018. It reported that US natural gas rigs increased by four to 194 from March 23–29, 2018. Rigs increased by 34, or 21.3% year-over-year. Rigs are at the highest level since November 6, 2015.
Rigs increased because US crude oil and natural gas prices have increased ~148% and ~37%, respectively, since February 11, 2016. The Vanguard Energy ETF (VDE) and the Guggenheim S&P Equal Weight Energy ETF (RYE) increased ~32% and ~44%, respectively, during the same period. VDE follows an index of energy stocks. RYE follows the S&P 500 Equal Weight Energy Index.
Monthly drilling productivity report
The EIA (U.S. Energy Information Administration) estimates that US natural gas production will increase in the seven shale regions by 969 Mcf (million cubic feet) per day to 66,119 Mcf per day in April 2018 compared to March 2018. Production is estimated to rise mainly in the Appalachian, Permian, and Haynesville shale regions during April 2018.
OPEC’s production cuts
OPEC (Organization of the Petroleum Exporting Countries) and Russia decided on crude oil production cuts from January 2017 to December 2018. Saudi Arabia has supported the extension of production cuts in 2019. WTI (West Texas Intermediate) oil prices have risen ~53% since June 21, 2017, partly due to ongoing production cuts. The Energy Select Sector SPDR ETF (XLE) has risen ~8.2% since June 21, 2017. XLE tracks the Energy Select Sector Index.
Higher compliance with production cuts and another output cut extension could support oil prices. Higher compliance could increase US energy companies’ capital expenditures and spur US drilling and production.
The link with crude oil prices
WTI oil prices have risen ~53% since June 21, 2017. Natural gas is usually an associated product of crude oil. Higher oil prices could increase US oil rigs, which could increase US natural gas supplies. Higher US natural gas supplies would pressure natural gas prices.
Next, we’ll take a look at US natural gas production and consumption.