What’s going on with natural gas prices?
It's one of the only (possibly the only) commodities to sell for cheaper than it was a year ago.
Today I’m going to discuss three main reasons why natural gas prices (in the United States) haven’t participated in the commodity boom of 2010.
The first reason is that natural gas prices are loosely tied to oil prices.
Yes, oil prices rose over the past year, but only by about 10%. In order for oil prices to significantly buoy natural gas prices, we’ll need to see another huge ramp up like we did in the summer of 2008. Those higher oil prices (above the $100 mark - as an estimate) bolster demand for natural gas.
Why? Well, natural gas is an input in some oil production. Natural gas is pumped into oil wells in order to sustain pressure to bring oil out of the ground. It’s used to power machinery and produce oil in non-conventional oil production.
The more expensive oil gets, the more likely conventional and non-conventional producers are to boost production - which increases demand for natural gas.
Additionally, as oil becomes more expensive, energy consumers in industries that have the capability to switch between crude oil and natural gas will switch to natural gas. Again, that bolsters natural gas demand. (more)
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