Natural gas rig count
The natural gas rig count was at 193 last week—four more than the previous week. However, the natural gas rig count has fallen ~88% from its record level of 1,606 in 2008.
Between January 2008 and July 2018, US natural gas marketed production rose ~57.6% despite the falling natural gas rig count. As a result of the increased supply, natural gas active futures have fallen 58.7% since January 2008.
Rising US oil production is the driving factor 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 above chart shows the relationship between the rig count and natural gas production.
Crude oil rig count
Between January 4, 2008, and October 5, 2018, the oil rig count more than doubled. Based on the relationship between oil prices and the oil rig count, the oil rig count is expected to keep rising until at least March 2019. A higher oil rig count could boost crude oil and natural gas supplies and pressure natural gas prices. Last week, the oil rig count rose by eight to 869—back to its multiyear high.
Based on the Drilling Productivity Report released by the U.S. Energy Information Administration on October 15, the natural gas production in major US shale regions could rise 20% year-over-year in November. Natural gas bears might appreciate the increased supply, which could impact natural gas’s rise.
Energy stocks and energy ETFs
In the trailing week, natural gas–weighted stocks Chesapeake Energy (CHK), Southwestern Energy (SWN), and Cabot Oil & Gas (COG) have fallen 1%, 1.4%, and 2.1%, respectively. In the last five trading sessions, natural gas November futures fell 0.8%.
In the seven calendar days ending on October 16, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) fell 4.7% and 6.2%, respectively. These ETFs contain natural gas producer stocks that could be sensitive to oil and gas rig counts.