Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Big Dog's Boom Boom Room -- Ignore unavailable to you. Want to Upgrade?

To: Tomas who wrote (34787)	8/30/2004 5:17:49 AM
From: Tomas	Respond to of 206223

Oil patch stands to benefit from sinking gas prices The Globe & Mail, Monday, August 30 By Patrick Brethour CALGARY -- The historically tight relationship between crude oil and natural gas prices has splintered, with the cost of gas sinking this summer even as oil has bounced around in record territory. Typically, a barrel of oil sells for six times as much as a million British thermal units of natural gas, largely a reflection of their comparable energy content. But that long-standing ratio has evaporated this summer: oil is now selling for eight and a half times as much as gas and has traded well above the traditional ratio since the end of June. Should it linger, the disconnect between oil and gas prices will have profound implications for the oil patch, analysts say, spurring investment in new oil production. And in the short run, it will be a boon for oil sands producers, who are now in the unusual and welcome situation of using relatively cheap gas to produce oil selling for record prices. "It's the best of both worlds for them," said Andrew Boland, an analyst with Peters & Co. Ltd. in Calgary. There is a split over how long the disconnect will last, however, with the disagreement centred on how important a role this summer's cold weather has played in driving down natural gas prices. U.S. natural gas inventories were 6.7 per cent above their five-year average last week. Jim Osten, principal with Global Insight in Lexington, Mass., said he believes weather has played a significant part, and that gas prices are likely to rise sharply during the winter when demand peaks because of heating needs. Mr. Boland, however, said that the cold summer made only a "minor contribution" to relatively cheap gas and that the situation may not be a short-term blip. The growing inventories of natural gas and a rosier supply picture are the main determinants of the relative decline in prices, he said. The geopolitical turmoil that has rocked crude prices and opened up profit opportunities for speculators has not been a significant factor in natural gas, he noted. "The oil markets are wild at the moment." Oil prices eased last week as concerns about supply interruptions ebbed, but natural gas essentially kept pace with that decline. Mr. Osten suggested that the disconnect may have more to do with how oil is trading on the New York Mercantile Exchange than conditions specific to natural gas. West Texas Intermediate, the oil traded on the Nymex, typically sells for about $1 (U.S.) more than Brent crude, traded in London. That gap has grown to nearly $3 a barrel, he said, meaning that Brent has become relatively cheaper in the same manner as natural gas. The current ratio of oil and gas prices is halfway to the old 10:1 relationship, an era when natural gas was a less attractive play than crude. The tables have turned in recent years. "Oil has been the poor sister in regards to investment," Mr. Boland said. If gas remains relatively inexpensive, however, interest in oil production would almost certainly rebound, he said, predicting that any renaissance in activity would be centred on wringing crude out of existing fields. theglobeandmail.com