Publications: Notes at the Margin

Further Loss of Confidence: The US Natural Gas Precedent for Oil (September 23, 2024)

 

Natural gas is “dirt cheap” in the United States. The most recent Henry Hub spot price was $2.33 per million Btu, which is the oil equivalent of around $15 to $18 per barrel. As Figure 1 (page 2) shows, gas prices have been low for years.

 

The rock-bottom prices have not prevented firms from drilling, however. The efficiencies in gas production and the presence of more lucrative coproducts (oil) have prompted firms to maintain their activities. Last week, several executives asserted that gas production would rise substantially if the Biden administration removed its restrictions.

 

The natural gas price contrasts markedly with oil, which is hovering around $70 per barrel. Company executives, analysts, and oil “followers” insist that crude should be higher even as many firms aggressively boost output to take advantage of today’s profitable prices.

 

Given the slowing global demand for oil, though, one wonders whether oil markets will soon be treading natural gas’s path. 

 

To receive the full report along with future issues of Notes at the Margin, please Contact Us or send us an Information Request for subscription information.