Natural Gas Falls as Oil Recovers

Natural gas prices have continued to fall in price even as oil begins to see a rebound, leaving traders wondering if the two commodities are beginning to decouple.

Natural gas futures fell below $3 per million BTUs on Friday morning, their lowest level since 2012. The decline means natural gas prices have fallen by 29% in 2014, and many economists believe further price declines are possible in 2015.

Natural gas prices have continued to fall in price even as oil begins to see a rebound, leaving traders wondering if the two commodities are beginning to decouple.

Natural gas futures fell below $3 per million BTUs on Friday morning, their lowest level since 2012. The decline means natural gas prices have fallen by 29% in 2014, and many economists believe further price declines are possible in 2015.

Economists at BNP Paribas told clients in a report that natural gas inventories are likely to rise to a record high in the next ten months, causing an energy glut comparable to the rising productivity of oilrigs worldwide that brought oil prices down in the summer of 2014. BNP Paribas notes that hydrofracking and a relatively mild fall and early winter have limited natural gas consumption, which could cause further price declines in the coming months unless more parts of the world see a colder winter.

Falling natural gas prices has led some analysts to predict many utility companies will switch from coal to natural gas, especially in the United States where a hyrdofracking revolution has created an abundance of cheap energy.  Despite environmental concerns that have limited production in regions like New England, where energy consumption is markedly higher than many other parts of the country. Some analysts have downgraded coal producers as a result, expecting a further shift to natural gas in the near term.

Oil Bounce

In London trading, oil saw a 1% rise as Brent futures rose over 1% to above $60 per barrel after unrest in Libya hinted at volatility in the future. Libyan fighters struck an oil tank as the two opposition governments continued to fight over control of the port Es Sider. Forces have been fighting in the region for over two weeks, but had little effect on the price of oil. Now, the fight has caused a fire at an oil storage tank in the port, which has since spread to two more tanks, prompting fears of a supply disruption.

Despite the rise, futures remain down by about 45% for 2014, and Saudi Arabia has asserted that it will continue with its rate of oil production, despite the decline in prices caused by oversupply. Saudi Arabia still expects oil prices to rise in 2015. The fall in oil-based revenues has caused the Saudi Arabian government to project a $39 billion deficit for 2015. The nation has also said it will cut wages for workers.

In the United States, equity futures were up 0.23% shortly before the beginning of trading Friday after markets closed on Christmas. Analysts have debated the value of falling oil prices in the United States, with some arguing that it could lead to a deflationary spiral that will curb spending and create recessionary conditions, while others argued that it would yield the exact opposite: a rise in spending as prices fall and consumers find their discretionary income rises.

Earlier this week, the Bureau of Economic Analysis announced that the U.S. GDP grew far beyond expectations at a 5% annual rate in the third quarter, the same period when oil prices were falling. At least initially, the indications are that cheaper energy is benefitting U.S. GDP growth by encouraging more spending and investment in non-energy related goods and services. Durable goods and Federal government spending saw the highest growth in the period.