Energy Update | July 13th, 2020

In my June 16^th & July 7^th 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 9^th 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.