MARKET WATCH: US natural gas futures spiral down

US gas futures for August dropped 7.5¢ to settle at $2.17/MMbtu on July 26, marking a 3-year low for the contract on the New York market while oil prices on the same exchange rose slightly to hold above $56/bbl for a second consecutive day.

US natural gas futures for August delivery dropped 7.5¢ to settle at $2.17/MMbtu on July 26, marking a 3-year low for the front-month contract on the New York market while crude oil prices on the same exchange rose slightly to hold above $56/bbl for a second consecutive day.

“Gas markets are sending a clear message to operators to cut growth,” Kyle Derham, a member of EQT Corp.’s executive committee, told investors during a July 25 conference call on second-quarter earnings.

“While we have started to see a pullback in activity, more is needed to balance the market,” Kyle said. EQT executives said they plan to pay down debt and buy back stock rather than drill.

US oil prices had rallied to $60/bbl after the Organization of Petroleum Exporting Countries and its allies agreed to continue production cuts into 2020. But crude prices on the New York futures market have been unable to sustain $60/bbl since July 12.

Even if prices rally again, Raymond James Associates analysts expected the rig count will continue to drop.

“The capital markets haven’t been available,” said Praveen Narra, an equity analyst at Raymond James. “That has led to more conservative budgeting processes and an unwillingness to revise activity upwards even when oil prices are rising.”

Raymond James expects oil and gas rigs will fall by another 40 rigs in 2019, and recently revised this year’s average rig forecast to 980 rigs from 1,015 rigs.

Baker Hughes Inc. reported the US drilling rig count dropped 8 units to 946 rigs working during the week ended July 26. The count is down from the 1,048 units drilling during the same period time last year (OGJ Online, July 26, 2018).

Energy prices

Light, sweet crude oil on the New York Mercantile Exchange for September delivery gained 18¢ to settle at $56.20/bbl on July 26 while the October contract increased 17¢ to $56.33/bbl.

Ultralow-sulfur diesel for August edged down nearly a penny to $1.90/gal. The NYMEX reformulated gasoline blendstock for August also dropped less than 1¢ to a rounded $1.88/gal.

Brent crude for September rose 7¢ to $63.46/bbl. The October price increased 11¢ to settle at $63.37/bbl.

The gas oil contract for August declined $4.25 to $584/tonne on July 26.

The average for OPEC’s basket of crudes was $64.02/bbl on July 26, down 53¢.

Contact Paula Dittrick at pdittrick@endeavorb2b.com.

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