OPEC oil decision could undercut U.S. natural gas price surge

By Naureen S. Malik on 12/4/2018

NEW YORK (Bloomberg) -- A decision by OPEC and its allies to cut oil output in order to bolster prices could, in an odd market twist, undermine a recent price surge for natural gas heading into winter.

For most of 2018, gas prices sat in a narrow trading range significantly below the five-year average. In November, though, prices surged as much as 41% as frigid weather stoked concerns about supply shortages ahead.

The Economic Commission Board for the global oil cartel and its partners will meet Dec. 6 in Vienna to decide whether to curb crude output to help raise oil prices that have fallen by more than 30% in the last two months. If the 15-nation group approves limits, it could give U.S. shale drillers added revenue to boost their output of both oil and the gas that’s pumped up alongside it. The more gas, the lower the price.

“The OPEC decision will definitely matter," said Jane Trotsenko, an analyst with Stifel Nicolaus & Co. Inc., in a telephone interview. If revenue rises, shale producers “are going to try to grow within their cash flow.’’

In America, shale oil now accounts for roughly a third of the country’s gas supplies. An OPEC decision to curb output could spur a quick rise in natural gas supplies, according to Trotsenko. The Permian Basin has 3,600 wells that have been drilled but not opened that could be quickly pushed into action.

Conversely, if the Organization of the Petroleum Exporting Countries and its allies decide against limits, it may take the gas market six to 12 months to see a slowdown in the existing flow of gas, she said. That’s because it takes time to eliminate working rigs and let oilfield services contracts expire.

Gas producers most exposed to price swings are Eclipse Resources Corp., Comstock Resources Inc., Southwestern Energy Co., Gulfport Energy Corp. and CNX Resources Corp., according to Stifel Nicolaus. These companies are more sensitive to gas-price swings based on how they hedge and other metrics, according to the group’s Nov. 26 report.

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