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US Natural Gas Rigs Are near a Four-Week High

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US natural gas rig count 

Baker Hughes, a GE Company (BHGE), published its weekly US natural gas rig count report on July 13. Baker Hughes reported that US natural gas rigs rose by two to 189 on July 6–13—the highest level since June 15. The rigs have also increased by two or ~1.1% year-over-year.

WTI and natural gas prices decreased 3.8% and 3.7%, respectively, last week. However, the VanEck Vectors Oil Services ETF (OIH) rose ~0.6% during the same period. OIH has exposure to oilfield equipment and services companies.

Noble (NE), Rowan Companies (RDC), Ensco (ESV), and Weatherford (WFT) rose 5.9%, 5.8%, 4.7%, and 3.8%, respectively, on July 6–13. These stocks were the top percentage gainers in OIH’s holdings during this period. These stocks account for ~10.6% of OIH’s holdings.

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Peaks and low in natural gas rigs 

US natural gas rig count hit a record high of 1,606 during the week ending September 12, 2008. In contrast, the rigs hit an all-time low of 81 during the week ending August 26, 2016.

EIA’s monthly drilling report

The EIA is scheduled to release its monthly drilling productivity report on July 16. In the previous report, the EIA estimated that the US natural gas output would rise in the seven shale regions by 1,135 Mcf (million cubic feet) per day to 69,759 Mcf per day in July compared to the previous month. During this period, the output is expected to rise mainly in the Appalachia and Haynesville shale regions. The expectation of a rise in production could pressure natural gas prices.

Impact 

For the week ending July 13, natural gas rigs have risen 133% since the lows on August 26, 2016. Active US crude oil and natural gas futures have risen 171% and 38.3%, 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 oil rigs, which could increase crude oil and natural gas supplies. Higher natural gas supplies could weigh on natural gas prices.

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

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