Ferguson's Forecast: Record Oil Prices Pull Natural Gas Prices Higher

Editors? note: Opinions expressed in this column are those of the author. This publication takes no responsibility for the accuracy of this forecast. Natural gas markets shrugged off an adequate weekly storage report and continued to push prices higher, closing yesterday at $7.26/MMBtu for November delivery, up another 50 cents from last week. The cause for this irrational exuberance is apparently the record-setting pace of crude oil markets, which set another record yesterday at $52.67/bbl. The price of crude on an energy basis is now about $9/MMBtu, and every facility that has the ability to switch from oil to gas has already done so. Competition between the two fuels is now minimal, so rocketing oil prices are a mystery to me. As I remarked in this column several weeks ago, oil markets have challenged OPEC?s ability to increase production and bring prices down. OPEC has failed to meet that challenge, and prices have responded accordingly. For the time being, at least, OPEC has lost control over oil prices. There are also other forces at work. Damage to U.S. production caused by Hurricane Ivan will take longer to repair than previously expected. Iraqi oil continues to be targeted by insurgents. Unrest in Nigeria continues to threaten production there. The political situation in Russia has not been resolved. And the list goes on. Nevertheless, global oil production has been fairly robust this year. What?s new is that producing countries, including Saudi Arabia, have virtually exhausted all spare capacity. I do not expect oil supplies to expand in the next few months, despite record prices. As reported earlier, some experts believe global oil production has reached its peak and will decline. Whether this is true or not, oil prices could go much higher until production increases or consumers get squeezed enough to reduce consumption. Natural gas seems to be going along for the ride, so hold on to your hats. ?Dr. Rich Ferguson, Research Director, CEERT, rich@ceert.org

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Ferguson’s Forecast: Record Oil Prices Pull Natural Gas Prices Higher

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