Hola,
GAS. Materia Prima.
Natural Gas Cheapest to Oil Since 1992 Signals Gain.
By Margot Habiby.
This year’s 31 percent decline in natural gas made it the worst performing commodity and the cheapest next to oil since the fall of the Soviet Union. That’s about to change, if history is any guide.
Natural gas lost 72 percent in 11 months as the U.S. fell into the deepest recession in 50 years and drillers failed to idle rigs fast enough to control inventories.
Stockpiles are 22 percent larger than the five-year average, the Energy Department said. Oil costs 18 times more than gas, the biggest gap since 1992, when the collapse of communism cut supplies from Russia, according to data compiled by Bloomberg.
Now, gas drillers are tightening their grip on production just as the economy shows signs of improving. The number of U.S. rigs plunged 56 percent in nine months, the steepest drop in two decades, Baker Hughes Inc. said.
Gas may rise 38 percent in the second half, while oil will gain 22 percent, according to Bloomberg analyst surveys.
“The scope for gas to rally before the end of the year is bigger than for oil,” said Ben P. Dell, an energy analyst with Bernstein Research in New York. “The gas market is playing out as expected. Supplies are getting drastically reduced because of falling rig counts, and demand is showing some signs of stabilization.”
Gas for July delivery was trading at $3.858 per million British thermal units, down 0.3 percent, on the New York Mercantile Exchange at 12:24 p.m. in Singapore. It closed at $3.868 on June 5, its 31 percent drop this year the most in the 24-member S&P GSCI Commodity Index.
Oil vs. Gas.
Futures may rise this week, a Bloomberg News survey of 16 analysts showed. Oil cost 8.4 times more than gas on average during the past decade, according to data compiled by Bloomberg.
Prices are likely to climb to an average $6.50 per million Btu in the fourth quarter from an average $3.90 in the second, Eugen Weinberg, an analyst with Commerzbank AG in Frankfurt, forecast last month. The price has averaged $3.766 so far this quarter and is up 10 percent in two weeks.
The number of U.S. gas rigs declined to 700 last week, the lowest since 2002, according to Houston-based Baker Hughes, the world’s third-largest oilfield-services supplier.
OPEC’s decision to cut production by 3.46 million barrels a day, or about 12 percent, helped crude rally 54 percent this year, to $68.44 a barrel on June 5 in New York.
The Organization of Petroleum Exporting Countries pumped close to capacity as the economy expanded and crude almost tripled between January 2007 and July 2008 to a record $147.27 on July 11. Natural gas followed, more than doubling to a 2008 high of $13.694 per million Btu on July 2.
Collapsing Demand.
As the economy slowed, demand from factories and power plants, the users of 58 percent of all natural gas, declined. By April, prices touched a six-year low of $3.155.
“Fundamentals are holding gas down, and crude oil is trading less on fundamentals and more on consumer sentiment and perception,” said Steven Schork, president of Schork Group Inc. of Villanova, Pennsylvania, an energy-trading consultant. “We have a disconnect between the two, and there is no expectation in the near term to see these two re-link.”
Dell at Bernstein Research said gas needs to reach $7.50 to spur enough production to meet demand, known in the industry as the marginal cost of supply. He forecasts gas will more than double to $9 to $10 by the end of the year, while oil will rise to $70 or $80 a barrel from $68.44 as of June 5.
If he proves right, a speculator who bought 10 gas contracts and sold an equal number of crude futures would earn a return of about 46 percent.
Price Ratios.
Dell’s fourth-quarter gas price would lower the ratio to about 8-to-1. The median estimate of analysts in the Bloomberg survey for $5.50 represents 11-to-1, based on the fourth-quarter forecasts at $61 a barrel.
Oil reached 18.1 times the price of gas on June 4, the highest since January 1992. The ratio fell to 8-to-1 by September that year as Hurricane Andrew halted daily output of 13 billion cubic feet of gas and the economy recovered from a recession.
Bill O’Grady, the chief markets strategist at St. Louis- based Confluence Investment Management LLC, an investment advisory and management firm, said the ratio may reach 20 to 1 or greater as natural gas inventories increase as do risks to oil supplies.
Oil production in Nigeria, Africa’s biggest producer, fell to less than half the country’s capacity last month as fighting escalated in the Niger River delta.
“We have made tremendous strides in improving” the gas supply situation, he said. “When the technology improved to the point where you can capture shale gas, we found out we’ve got all kinds of supply here in the Lower 48.”
Gas Shales.
Gas producers started tapping so-called shale gas formations after technology to exploit the reserves was perfected in the 1990s. Gas in shale deposits is locked into nonporous rocks. Gas found in more traditional locations is often under enough pressure to rise to the surface on its own.
While home resale data and forecasts for a strengthening gross domestic product show the economy is stabilizing from the recession that started in December 2007, it’s premature to say the contraction is over, according to the National Bureau of Economic Research, which calls the nation’s financial cycles.
Gross domestic product estimated on a monthly basis “had a trough earlier this year, but it is way too early to say that it is a true trough rather than a pause in a longer decline,” said Robert Hall, who heads the NBER’s Business Cycle Dating Committee.
Economists expect the economy to grow 0.5 percent in the next quarter and then expand further, according to 61 responses to a Bloomberg News survey.
Houston-based ConocoPhillips, the third-largest U.S. oil company, expects natural gas will rise to $6 to $8 as early as next year as demand recovers, said John Wright, president for gas and power marketing.
“I don’t think the levels that we’re at now will provide the supply needed to meet demand, and that says prices will go up from here,” he said in a June 4 interview in Houston.
To contact the reporter on this story: Margot Habiby in Dallas at
[email protected].
Saludos.
