Natural Gas: Why the Rig Count Might Bring Relief

Natural gas rig count

The natural gas rig count was at 194 last week—unchanged from the previous week. The natural gas rig count has fallen ~87.9% from its record level of 1,606 in 2008.

Natural Gas: Why the Rig Count Might Bring Relief

Oil rigs impact natural gas prices

Between January 2008 and November 2018, US natural gas’s marketed production rose ~61.1% despite the falling natural gas rig count. As a result of the increased supply, natural gas active futures have fallen 63.6% since January 2008.

Rising US oil production is the key factor behind the increase in natural gas supplies. Since natural gas is often a by-product of US shale oil production, it’s important to monitor the oil rig count to understand natural gas supplies.

Crude oil rig count

Between January 4, 2008, and February 22, 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. A higher oil rig count could boost crude oil and natural gas supplies and pressure natural gas prices. Last week, the oil rig count fell by four to 853—a positive development for natural gas prices.

Based on the drilling productivity report from the U.S. Energy Information Administration on February 19, the natural gas production in major US shale regions could rise 19.7% year-over-year in March. 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 Range Resources (RRC) returned -1.9%, 4.1%, and -2.7%. During this period, natural gas April futures rose 3.7%.

In the seven days ending on February 26, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) and the Energy Select Sector SPDR ETF (XLE) fell 2.4% and 1%, respectively. These ETFs contain natural gas producer stocks that could be sensitive to the oil and gas rig counts.