In Ernst & Young’s Q3 outlook for oil and natural gas they state a $20 – $25 “hope premium” in the price of oil. E&Y points out that on a barrel of oil equivalent basis, oil is now approximately three times the value of natural gas. Marcela Donadio, Ernst & Young LLP is quoted:
“In the past few years, there was a $20 to $25 per barrel ‘risk premium’ added to oil prices. That premium has been replaced by a ‘hope premium’, as markets believe an improving economy will spur significant demand increase. Major players in the energy industry are preparing for the upturn.”
But while oil has scene a rebound off lows, natural gas has yet to see a turn around. This turnaround in natural gas prices will occur once substantial production closures start to have a major impact on supply inventories. We have likely scene the early indications of this in the last three natural gas reports on US inventories, with August being a key month to watch for further declines.
Within the time context of the E&Y report there may be slight increases in oil in Q3. Though oil is trading at a barrel equivalent three times that of natural gas, look for more of a meeting in the middle, and not for a continued upward trend on oil and a widening gap between the two values. Real demand increases for both oil and natural gas will start in Q409, and Q110.
PR Newswire: Ernst & Young Q3 2009 Oil and Gas Outlook
