Natural gas rig count
The natural gas rig count was at 187 last week—the same as the previous week. The natural gas rig count has fallen ~88.4% from its record level of 1,606 in 2008. However, US natural gas marketed production rose ~45.8% between January 2008 and April 2018 despite the natural gas–targeted rig count falling. As a result, natural gas active futures have fallen 64.5% since January 2008.
Sharp rise in natural gas supplies
Rising oil production in the United States is behind the rise in natural gas supplies. Since natural gas is often a by-product of US shale oil production, it’s important to watch the oil rig count to understand natural gas supplies. The relationship is shown in the above chart.
Crude oil rig count
Between January 4, 2008, and July 6, 2018, the oil rig count more than doubled. Based on the relationship between oil prices and the oil rig count, the oil rig count might keep rising until at least November. A higher rig count could boost crude oil and natural gas supplies and pressure natural gas prices. Last week, the oil rig count rose by five to 863—back to its three-year high.
Based on the EIA’s (U.S. Energy Information Administration) drilling productivity report on June 18, the natural gas production in major US shale regions could rise 34.1% year-over-year in July. Natural gas bears will likely appreciate the higher supply.
Energy stocks and energy ETFs
On our list of natural gas–weighted stocks, Chesapeake Energy (CHK) and Southwestern Energy (SWN) have fallen the most since 2008. They have fallen 84.2% and 81.3%, respectively. Cabot Oil & Gas (COG), the only gainer, has risen 136.6%. In the trailing week, Chesapeake Energy, Cabot Oil & Gas, and Southwestern Energy have risen 2.3%, 1.1%, and 3%, respectively, while natural gas August futures have fallen 2.9%.
In the trailing week, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) have risen 4.1% and ~2.8%. These ETFs contain natural gas producer stocks that could be sensitive to the higher oil rig count impacting natural gas prices.