Global Outlook

Natural Gas

Contributed by eResearch

For quite a while, natural gas performed so badly, with the price beaten down because of the tremendous new supplies found in the United States, and which are accessible because of evolving fracking techniques. As a substitute, especially for coal, natural gas all of a sudden came into sharp focus. After hitting a low of US$1.84 mmbtu last April, the price has more than doubled and currently (March 14) sits at US$3.74 mmbtu.

The first chart shows the trend in the ratio of crude oil to natural gas. At the last significant market low, on October 1, 2011, the ratio was 21.58x. The current ratio (March 14, 2013) is 24.87x. It had reached a high of 56.01x when the price bottomed out in April, 2012.

The second chart, on the next page, compares the relative performance of oil versus gas to their respective prices on October 1, 2011. Oil has outperformed over the period but, since April, gas has almost closed the gap.

The average price of natural gas s ince Octob er 1, 2011 is US$2. 98 per mmbtu. (The current price is US$3.74 per mmbtu, up from an April low of US$1.84 per mmbtu, and trending higher lately.)

The following table shows the trend in natural gas on a quarter-by-quarter basis.

The price of natural gas has been out-performing oil over the past four weeks. If recent trends can be sustained, then the average price for 2013 could get back to 2010 levels. If so, this could give continuing momentum to those beaten-down natural gas stocks that are starting to show some life.