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US Natural Gas Rigs Fell to a Ten-Week Low

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US natural gas rig count  

Baker Hughes, a GE Company (BHGE), released its weekly US natural gas rig count report on June 15. Baker Hughes reported that the US natural gas rig count fell by four to 194 on June 8–15—the lowest level since April 13. However, the rigs increased by eight or ~4.3% from a year ago.

US crude oil prices declined 1% last week, while natural gas prices increased 4.6% during the same period. The VanEck Vectors Oil Services ETF (OIH) fell ~4.7% during the same period. OIH has exposure to oilfield equipment and services companies.

Ensco (ESV), Noble (NE), Nabors Industries (NBW), and Rowan Companies (RDC) account for ~9.1% of OIH’s holdings. These stocks fell 12.6%, 12.2%, 10.5%, and 10.3%, respectively, on June 8–15. These stocks fell the most among OIH’s holdings during this period.

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Peaks and low in natural gas rigs  

The US natural gas rig count hit a record high of 1,606 during the week ending September 12, 2008. US natural gas prices hit $7.36 per MMBtu (million British thermal units) on September 12, 2008.

The rigs hit an all-time low of 81 during the week ending August 26, 2016. US natural gas prices hit $2.87 per MMBtu on August 26, 2016.

Impact 

For the week ending June 15, US natural gas rigs have risen 140% since the lows on August 26, 2016. WTI oil and US natural gas prices have risen 148% and 52%, respectively, since February 11, 2016.

Natural gas is often an associated product of crude oil produced in US shale formations. As a result, higher oil prices could increase the number of US crude oil rigs, which could increase crude oil and natural gas production. Higher natural gas supplies could pressure natural gas prices.

Next, we’ll discuss hedge funds’ net long positions in US natural gas.

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