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 70.6% since January 2008. Natural gas–weighted stocks Southwestern Energy (SWN) and Gulfport Energy (GPOR) have fallen 89.7% and 75.4%, respectively.
Rising US oil production is the key factor behind the increase in natural gas supplies. Since natural gas is often a byproduct 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 21, 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 rose by one to 789— near 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, based on the average closing prices, Henry Hub natural gas prices have fallen ~12.2% on a sequential basis. Southwestern Energy and Gulfport Energy’s EPS will likely fall 51.8% and 18.2%, respectively, in the second quarter on a sequential basis based on analysts’ consensus estimates.