22 Jun

How the OPEC Meeting Could Affect US Natural Gas Prices

WRITTEN BY Gordon Kristopher FEATURED IN Commodities

Drivers of natural gas production 

Higher crude oil prices and improving natural gas pipeline capacity in the United States have led to a rise in natural gas production. Natural gas is often an associated product of crude oil produced in US shale formations.

Active Brent and WTI crude oil futures have risen ~63% and ~54%, respectively, since June 21, 2017, partly due to supply cuts by major oil producers. The two-day OPEC meeting began on June 22, at 4.00 AM EST. On June 21, the Saudi Arabian energy minister said major oil producers need to increase output by 1,000,000 bpd. A significnat increase in crude oil production from major oil producers could pressure oil prices.

As a result, lower oil prices could decrease the number of active US crude oil rigs, which could decrease oil and natural gas production. Lower natural gas supplies could support natural gas prices.

How the OPEC Meeting Could Affect US Natural Gas Prices

Weekly US natural gas production  

Market intelligence company PointLogic estimates that US dry natural gas production increased 0.5% to 80.1 Bcf (billion cubic feet) per day from June 14 to 20. Production also increased 11.9% or by 8.5 Bcf per day from a year ago.

Active US natural gas futures nearly hit a 13-month high on January 29. Since then, prices are down ~18%, partly due to increased production and mild weather. The United States Natural Gas ETF (UNG) fell ~10.2% since January 29. UNG seeks to track active natural gas futures. The First Trust Natural Gas ETF (FCG) aims to track the performance of an index of companies mainly involved in natural gas exploration and production. FCG fell 3.9% since January 29. Natural gas–weighed stocks Cabot Oil & Gas (COG), Gulfport Energy (GPOR), and EQT (EQT) fell 10.5%, 5.6%, and 1.5%, respectively, since January 29.

Natural gas production estimates 

Annual US dry natural gas production increased 48% since 2005. US natural gas production averaged 73.6 Bcf per day in 2017. The EIA estimates that US natural gas output could average ~81.20 Bcf per day in 2018 and ~83.78 Bcf per day in 2019. Annual US natural gas production’s average could hit a new record in 2018 and 2019 if these projections are achieved.

Impact 

Record US natural gas production could weigh on natural gas prices.

Next in this series, we’ll cover US natural gas consumption.

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