Asymmetric Effects of Prices and Storage on Rig Counts: Evidence from the US Natural Gas and Crude Oil Markets

Song-Zan Chiou-Wei, Sheng-Hung Chen () and Wei-Hung Chen ()
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Song-Zan Chiou-Wei: Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung 824004, Taiwan
Sheng-Hung Chen: Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung 824004, Taiwan
Wei-Hung Chen: Department of International Business, National Kaohsiung University of Science and Technology, Kaohsiung 824004, Taiwan

Energies, 2023, vol. 16, issue 15, 1-25

Abstract: This study empirically investigates the asymmetric effects of spot (future) prices and storage on rig counts in the US natural gas and crude oil markets from January 1986 to May 2020. It adopts the Nonlinear Autoregressive Distributed Lag (NARDL) model and establishes a flexible and efficient framework that measures the effects of positive and negative shocks in each of these variables on rig counts while modeling possible asymmetries in both the short and long term. For the natural gas market, the results reveal significant long-term asymmetric effects of spot (future) gas prices and storage on gas rigs. The positive and statistically significant cumulative effect of changes in natural gas storage suggests that larger natural gas storage has caused changes in the use of natural gas drilling rigs. For the crude oil market, we find significant short-term asymmetric effects of spot (future) gas prices and oil stocks on oil rigs. Furthermore, in addition to the optimal price and level of storage, the cost, as proxied by the interest rate, is a crucial determinant in rig drilling decision-making in the energy sector.

Keywords: rig counts; natural gas market; crude oil market; storage; stocks; Nonlinear Autoregressive Distributed Lag (NARDL) model (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
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