Natural gas rig count
The natural gas rig count was at 198 last week—one more than the previous week an just two less than the highest level in 2018 since September 2015. The natural gas rig count has fallen ~87.7% from its record level of 1,606 in 2008.
Between January 2008 and September 2018, US natural gas’s marketed production rose ~64.5% despite the falling natural gas rig count. As a result of the increased supply, natural gas active futures have fallen 62.5% 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.
Crude oil rig count
Between January 4, 2008, and December 28, 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 two to 885.
Based on the Drilling Productivity Report released by the U.S. Energy Information Administration on December 17, the natural gas production in major US shale regions could rise 21.7% year-over-year in January. 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) rose 21.4%, 4.9%, and 0.9%, respectively. In the last four trading sessions, the natural gas February futures fell 14.1%.
In the seven days ending on December 31, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) rose ~10% and 6.5%, respectively. These ETFs contain natural gas producer stocks that could be sensitive to the oil and gas rig counts.