Falling Rig Might Not Support Natural Gas

Natural gas rig count

The natural gas rig count was at 181 last week—five less than the previous week. The natural gas rig count has fallen ~88.7% from its record level of 1,606 in 2008.

Falling Rig Might Not Support Natural Gas

Oil rigs

Between January 2008 and March 2019, US natural gas’s marketed production rose ~69.2% despite the falling natural gas rig count. As a result of the increased supply, natural gas active futures have fallen 70.3% since January 2008. Natural gas–weighted stocks Southwestern Energy (SWN) and Gulfport Energy (GPOR) have fallen 88.6% and 73.5%, respectively.

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 and natural gas–weighted stocks

Between January 4, 2008, and June 14, 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 bottom out this month. Last week, the oil rig count fell by one to 788—the lowest level since February 2, 2018. A possible rise in the oil rig count might increase the natural gas production growth rate this summer.

The movement might impact natural gas’s upside. So far in the current quarter, natural gas prices have fallen ~11.5% on a sequential basis. Southwestern Energy and Gulfport Energy’s EPS is expected to fall 51.8% and 18.2%, respectively, in the second quarter on a sequential basis based on analysts’ consensus estimates.