Energy News Update: Baker Hughes Report Confirms Active Natural Gas Rigs Continue to Decline

Energy News Update 5 July 2023 Baker Hughes Report Confirms Active Natural Gas Rigs Continue to Decline. In our

Energy News Update 5 July 2023

Baker Hughes Report Confirms Active Natural Gas Rigs Continue to Decline.

In our June 13th Energy Update we pointed out consolidation patterns form when traders are positioning themselves for long-term moves, and the more time it takes for the pattern to form the higher the subsequent move tends to be. This is especially true when the consolidation pattern is formed near an historically very low-price level.

Energy News Update 5 July 2023

We also pointed out Natural Gas tends to be lower in the Spring and Fall between the Winter Heating and Summer Cooling seasons, and this pattern is especially accurate when the Spring or Fall lows occur near historically low prices. For example, since 2000, Natural Gas has declined to near today’s unsustainably low prices 4 times; and in each case the final lows were attained either in the Spring or Fall:

Energy News Update 5 July 2023

Why were prices that low unsustainable?

They were unsustainable because they were below the cost of production, and Natural Gas exploration and production companies were no longer profitable near those low prices; therefore, weaker companies did not survive, and those who  survived were highly motivated to decrease production leading to higher prices so they could recoup lost revenue.

Is there any indication Energy & Exploration companies are starting to decrease production that will lead to higher prices?

In our May 22nd Energy Update, we pointed out the May 12th Baker Hughes weekly rig count reported energy & exploration companies reduced the number of active Gas drilling rigs from 157 to 141 rigs, which was the largest reduction since February 2016.

The Gas rig count is an early indicator of future output, and this report confirmed Energy companies were decreasing production, and the number of active Gas rigs has continued to decline with only 124 active rigs as of last Friday’s June 30th Baker Hughes weekly rig count, which is a 19% decline from this time last year.

Although no one knows for sure when Natural Gas will complete its present consolidation pattern, the empirical evidence continues to strongly support the probability Natural Gas and Electricity will be heading higher into the end of this year and throughout 2024.

Therefore, if you have agreements expiring within the next 18 months, we recommend you don’t delay hoping for lower prices and reserve power to be available when your present agreement expires. Our concern is the longer you delay now, the more you may pay later.

Not every client’s risk tolerance and hedging strategy are the same, but the above report will help you put into perspective the risk/reward opportunities. I invite you to call one of our energy analysts to help you plan a hedging strategy appropriate for your situation.

Ray Franklin
Energy Professionals
Senior Commodity Analyst

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