11 Nov

Will Rising US Natural Gas Rig Count Pressure Natural Gas Prices?

WRITTEN BY Gordon Kristopher FEATURED IN Macroeconomic Analysis

Weekly US natural gas rig count 

On November 11, 2016, Baker Hughes (BHI) will release its weekly US natural gas rig count. On November 4, 2016, Baker Hughes (BHI) reported that the US natural gas rig count rose by three to 117 rigs between October 28 and November 4, 2016. The rig count rose 2.6% week-over-week, but fell 41.2% year-over-year.

US natural gas prices fell 4% year-to-date. For more on natural gas prices, read Part 1 and Part 2 of this series. Lower natural gas prices have a negative impact on drilling activity.

Will Rising US Natural Gas Rig Count Pressure Natural Gas Prices?

Peaks and lows in natural gas rigs 

The US natural gas rig count peaked at 1,606 rigs on September 12, 2008. In contrast, it hit a low of 81 rigs in the week ending August 26, 2016. The US natural gas rig count rig count fell 92.7% from its peak level.

The US natural gas drilling activity fell due to lower natural gas prices, while natural gas prices fell due to oversupply. However, natural gas production has been strong despite lower natural gas prices due to booming crude oil production. Natural gas is often an associated product of crude oil. Read Is US Crude Oil Production Bearish for Crude Oil Prices? for more on US crude oil production.

US oil and gas drilling activity is expected to rise after Donald Trump’s surprise victory. Read Will the US Crude Oil Rig Count Rise after the Election? for more on the US crude oil rig count. The rise in drilling could mean higher production, which could eventually push prices lower.

Meanwhile, the rise in drilling activity has a positive impact on oil drillers and oil producers such as Baker Hughes (BHI), Halliburton (HAL), Rowan Companies (RDC), Atwood Oceanics (ATW), and Diamond Offshore (DO). Read Who Wins in the Energy Subsectors after the US Election Results? to learn more.

Impact on ETFs 

The rollercoaster ride in crude oil and natural gas prices can impact funds such as the Direxion Daily Natural Gas Related Bull 3X ETF (GASL), the United States Oil ETF (USO), the PowerShares DWA Energy Momentum ETF (PXI), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), the ProShares UltraShort Bloomberg Crude Oil ETF (SCO), the iShares Global Energy ETF (IXC), the United States Natural Gas ETF (UNG), and the VelocityShares 3x Inverse Natural Gas ETN (DGAZ).

Read the next part of the series to learn more about the weekly US natural gas supplies.

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