Widening Spread Between Nat Gas and Crude Oil

Apropos of our earlier post this morn, see this chart porn for energy traders from Floyd Norris’ Saturday NYT column:


Graphic courtesy of the NYT

A quick Ubiq-cerpt:™

Oil and gas prices have never moved in lock step, in part because each has different users. But the bigger reason is that one is part of a global market and the other is not.

Tankers can move oil or refined products to anywhere from anywhere, and will do so if prices rise in one region relative to those in another. Growing demand for oil in Asia, as well as fears of instability in the Middle East, have helped to raise oil prices.

Natural gas, on the other hand, has limited worldwide transportation. The market for liquefied natural gas is growing, and is a significant part of energy planning in China and other countries. But there is little capacity to move L.N.G. out of the United States if prices here fail to keep up with those in other parts of the world, as they have this year. While some power plants can shift between oil and natural gas, most users cannot, no matter how much prices get out of line.

And they are out of line now. Oil costs about 60 percent more than it did two years ago, but natural gas is selling for about a third less than it was during the winter of 2005-6, when there were fears of natural gas shortages. It has been more than a decade since the United States headed into a winter with natural gas this cheap relative to oil.


As Oil Soars, Natural Gas Is a Bargain
NYT,  November 10,

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What's been said:

Discussions found on the web:
  1. KP commented on Nov 12

    How about some basic stats to help mull over the question…


    Major takeaways:

    1. Origin:

    Lots of domestic production = protection from weak dollar.

    2. Usage:

    – Industry(we still have industry in the US?)
    – Residential(mostly southern homes, yanks use oil…no?…well, it ain’t cold yet in the south)
    – Electrical generation(I’ve read that Nattie Gas is an supplementary source for pwer generation, winter is not really peak season for electrical demand-no a/c’s)

    Having said all of this…I’m not saying that NG can’t be the next speculative play. People can rationalize anything if they try hard enough.

  2. Ross commented on Nov 12

    You can always turn nat gas into gasoline. Cheaper than moonshine.

  3. UrbanDigs commented on Nov 12

    Buy DUG if it dips!

  4. BKinDaHouse commented on Nov 12

    Is NG really cheaper than Oil. By the time you factor in distribution charges and all the other surcharges related to NG, isn’t thaat much cheaper than oil. On a $/kWh basis.

    With NG 64% off its Highs(double top 00/01 and 05/06)and Crude at all time highs, may soon be time to Short Crude and go long NG.

  5. Alejandro commented on Nov 12

    I wonder if this is another data point showing that the pure US domestic economy is slowing, whereas the global economy (for now) has not.

  6. michael schumacher commented on Nov 12


    Does anyone else see the large irony that ETFC has it’s additional write downs-the announcement of them IAC- on a day that the bank is closed……….thus not allowing ANY transactions to occur because they are “closed for the holiday”

    These news releases (all of them) are too well timed nowadays…..

    bonds are still closed…they have a little more time to be sneaky…….


  7. wally commented on Nov 12

    What a difference a cartel makes!

  8. Natgas commented on Nov 12

    Nat gas is regional, where oil is international. You can have scads of it, but without the infrastructure to get it to market, its just as cheap to leave it in the ground. Besides coal on a Kw/$ cost is still cheaper.

  9. marketwhisper commented on Nov 12

    Much of the refined product is done in the United States. Could it be possible that the pump price is being held down artifically? Kind of like bank stocks rally? Something strabge is going on in the markets and I simply can’t logically piece it together?

  10. XX commented on Nov 13

    How can I go “long” natural gas ???
    How to get exposure?
    Or do I need a futures account?

  11. cheddah commented on Nov 14

    The UNG is one way – it’s an ETF designed to match the daily percentage change on the NG futures.

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