Dallas: This year’s 31% 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% in 11 months as the US fell into the deepest recession in 50 years and drillers failed to idle rigs fast enough to control inventories. Stockpiles are 22% 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 US rigs plunged 56% in nine months, the steepest drop in two decades, Baker Hughes Inc. said. Gas may rise 38% in the second half, while oil will gain 22%, 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.
Gas for July delivery was trading at $3.858 per million British thermal units (mBtu), down 0.3%, on the New York Mercantile Exchange at 12:24pm in Singapore.
Prices are likely to climb to an average $6.50 per mBtu 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 number of US 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.
The Organization of Petroleum Exporting Countries (Opec) decision to cut production by 3.46 million barrels a day helped crude rally 54% this year, to $68.44 a barrel on 5 June in New York. Opec pumped close to capacity as the economy expanded and crude almost tripled between January 2007 and July 2008 to a record $147.27 on 11 July. Natural gas followed, at least doubling to a 2008 high of $13.694 per mBtu on 2 July.