Energy Update | July 13th, 2020

Low Oil & Gas Active Rig Count Powerful Evidence for Higher Electric & Gas Prices Long-Term! In my June

Low Oil & Gas Active Rig Count Powerful Evidence for Higher Electric & Gas Prices Long-Term!

In my June 16th & July 7th Energy Updates, I said Natural Gas prices remained low, but higher prices were on the horizon with Natural Gas prices consolidating at the lowest inflation adjusted prices since it began trading in 1990. Prices this low are below the cost of production, and companies producing Natural Gas cannot generate profits; therefore, weaker companies will not survive, and surviving companies will be highly motivated to decrease production leading to higher prices.

The evidence Oil and Gas companies intend to decrease production is reflected by active Oil and Gas rigs continuing to decline as reported by the latest Baker Hughes report released July 9th showing 5 more active Oil rigs were lost and we now have only 181 active rigs down 77% year-over-year, and Natural Gas lost another active rig leaving us with a record low of 75 active rigs down 56% year-over-year.

As I wrote in last week’s report, although in the short-term Natural Gas could retest recent lows, it is very unlikely prices will make new lows and the upside risk of higher prices is extremely high!  Remember we have a record low 75 active Natural Gas rigs, below where they were in 2016 when active rigs declined to a low of 81 active rigs and Natural Gas rallied from $1.61 to near $4.00 by the end of the year. 

In 2016, anyone wise enough to lock in a fixed rate for the next 3-years before prices increased saved a great deal of money. Based on today’s record low number of active rigs, I believe we have a similar opportunity.


Based on the empirical evidence delineated in this report, I trust you appreciate why I believe, Natural Gas and Electricity prices are poised to increase long-term, and it is wise to secure energy agreements near present price levels. The short-term downside reward potential of lower prices is minimal versus the upside risk of higher prices long-term.

Not every client’s risk tolerance and hedging strategy is 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
Senior Commodity Analyst
Energy Professionals

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