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Price correlation between oil and gas

By: rick martin

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There is a dynamic price relationship between oil and gas. Currently, natural oil prices have a great impact in the fuel industry. Nevertheless, correlation between raw oil and natural gas is necessary because they are not only complementary combustibles in consumption, but also rivals, in fuel production. Nevertheless, there are records of periods when the two combustibles presented separated evolutions. During this time interval, the natural gas prices raised above the crude oil prices. This is why analyses and forecasts of oil and gas became necessary.

Economic evolution of oil and gas has depended greatly on demand and supply. Market research proved that it happened for changes in the oil price to influence the natural gas price, but the converse never had a record. The relative dimension of each market has explained this asymmetric relationship between oil and gas price evolution. The estimation of the price of the former occurs at a global scale, while the estimation of the price of the later depends on regions. This means that the gas-segmented market is considerably smaller than the oil global market.

The economic factors of the oscillation have not yet entered a definite pattern and scientists consider that there may be many other factors, some of them hidden behind appearances. What is steady is the influence of the oil on the gas, while the inverse has not been possible so far, and no forecasts stating this have occured. Increases in oil prices may have different consequences on the gas market. As far as the demand is concerned, one must consider several points.

This increase of the raw oil price determines consumers to prefer natural gas to petroleum, which results in increasing the natural gas demand and, implicitly, prices. Oil and gas are competitive substitutes, especially in the electric and industrial fields. According to official figures, petroleum products can replace about 18% of the gas usage. There are, on the other hand, the dual-fueled devices that switch from one type of source to the other. Although these are rare cases, there is a certain influence on the fuel market.

With regard to the other side, the supply, increases in crude oil prices generated by an increase in crude oil demand may lead to price increase in natural gas. In this case, gas is identifiable as a co-product of oil. This situation determines decrease in gas prices. Gas exists in nature as two basic configurations: associated and non-associated. The associated type is natural gas found in oil reservoirs in two forms: free or dissolved. The non-associated type does not enter in contact with considerable amounts of oil.

Another connection between oil and gas establishes when the increases in crude oil prices generated by an increase in crude oil demand determine risen costs of gas production and development. In this case, a certain amount of pressure develops at the level of natural gas prices. There is a tight competition between oil and gas operators, especially with concern to labor and drilling rigs. More drilling and development means more production and lower prices for both oil and gas. Eventually, the influence is visible upon the cash flow.

We can see from the above analysis that there is a close price relationship between oil and gas. The one that benefits of most of the influence is natural gas, which is currently the most preferred fuel in many of the domestic or industrial activities.

Article Source: http://depositarticles.com/

Such originally different fuels as oil and gas can enter in correlation from many points of view. Nevertheless, to what concerns the price, the natural gas prices seem to be the most influenced ones.

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