Natural Gas Rig Count Is Slightly Up

Found an update on the US natural gas rig count via Reuters.

• The number of rigs drilling for natural gas in the United States unexpectedly rose again, the second gain in seven months, according to a report on Thursday by oil services firm Baker Hughes in Houston.
• The report showed U.S. gas drilling rigs edged up 1 to 688 this week, still 851 rigs, or 55 percent, below the same week last year, when there were 1,539 gas rigs operating.
• Tighter access to credit and a 70 percent slide in natural gas prices to about $3.50 per mmBtu, after peaking above $13 last July, have forced many producers to scale back drilling operations.
• But, with the natural gas drilling rig count below 700, most analysts expect to see year-on-year output declines soon, which should help tighten the overall supply-demand balance.

This hits on the important short-term factors for gas. Supply is still elevated, and while the rig count went up by one this week, it is substantially down from last year in efforts to balance supply and demand. For gas prices, this could be more uncertainty, but likely some bouncing around at these levels until demand picks back up.

Here's a link to the Baker Hughes US rig report from 7/2/09 (pdf).

I've been picking up shares of UNG lately, so I'll continue to update on this situation.

Disclosure: Author owns shares of UNG.

Comments

[stocknerd:]

All at UNG should be slowly and patiently loading the boat. Buy low sell high ---that is easy to understand. UNG is low. Buy. Ok, buy slowly.

Jul 05 09:42 AM

[SCN4:]

Remember that the producers have spent a ton of money on leases that they will lose if they do not drill. So just because we see rig counts rise a little bit does not mean any gas will be produced from new wells. Simply poking a hole in the ground and capping it is all most producers have to do in order to prevent losing their land leases. I know for a fact that this is happening quite a bit in the Barnett Shale. UNG is an excellent buy right now. These producers are not stupid, and most of the smart ones have hedges in the $6-8 range in place through 2010 to protect against these low prices. Now they are in the mode of cutting back where possible so that they are not selling gas too cheap. This has taken a little time, but it is working and it is only a matter of time before we get back above $5.

Jul 05 06:57 PM