Natural Gas: One Commodity, Three Prices

US natural gas prices are cheap relative to the rest of the world, at about $4 per million British thermal units. In Europe, gas is trading at double this price, while in Japan gas in its liquefied, imported state costs as much as $15.

With world prices so disparate, trading houses are positioning themselves to export liquefied natural gas from the US should the US government open up the export market.

The reason for inexpensive prices in the US is the shale gas revolution. Last year in spring, US natural gas prices hit a 10 year low of around $2.

The larger context. What is happening to other commodity prices?

Corn is down 21% from its peak price of $8.43 per bushel on Aug. 10, 2012.

Gold is down 27% from its peak price of $1,920.30 per troy ounce on Sep. 6, 2011.

Copper is down 31% from its peak price of $10,190.00 per tonne on Feb. 15, 2011.

Brent oil is down 34% from its peak price of $147.50 per barrel on July 11, 2008.

Looking forward. What can we say about future inflation?

If history were to repeat itself, we could see 80% inflation at the CPI level in the next 5 years, according to the chart on page 10 of the following report and the discussion surrounding it. 

http://www.sitkapacific.com/files/Sitka_Pacific_Capital_Management_2013_Annual_Letter.pdf

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Gold Price: Unprecedented Move in 30 Years

Last week, gold suffered its biggest one day drop in percentage terms for 30 years on Monday, April 15.  It touched a two-year low of $1,321 per ounce during the following session (i.e. on Tuesday, April 16).

By the end of the week, gold regained the $1,400 mark, but was still down about $100 over the week.

What does this mean? 

I will venture to guess that we will see further price declines in gold. Alongside of this, we will see further strengthening of the US dollar as a safe haven currency. Furthermore, the decline in the gold price may be the harbinger of substantial drops in US equity markets ...


Updated on June 21, 2013.

Yesterday, gold fell more than 4% to a 2.5-year low of $1285.90 per ounce. (The April 15 drop which was reported above had been under 9%.)

Yesterday's drop occurred one day after the US Federal Reserve signaled a scaling back of its monetary stimulus program, on which day gold also dropped.

Joni Teves, UBS precious metals analyst, provided the following explanation for the price slide: slowing Fed asset purchases with the end now potentially in site, higher yields, a stronger dollar and continued improvements in the economy, coupled with an already very weak investor sentiment.

UBS, a leading bullion bank, lowered its one-month target to $1,250 from $1,425 and its three-month forecast to $1,350 from $1,500.

As reported in the Financial Times on June 21, 2013 on page 20.

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Global Oil Market Size by Type of Use

The size of the global oil market based on consumption demand was 87 Mn b/d (million barrels/day) in 2010, according to Opec and as published in the Financial Times on April 2, 2013, p. 9.

The high-level breakdown across types of use was as follows:

46 Mn b/d Transportation (53%)

23 Mn b/d Industrial activity (26%)

14 Mn b/d Power & heat generation (16%)

The low-level breakdown was as follows:

Transportation

22 Mn b/d cars (25%)

13 Mn b/d trucks (15%)

5 Mn b/d aircraft (6%)

4 Mn b/d ships (5%)

2 Mn b/d railways (2%)

Industrial activity

9 Mn b/d petrochemical activity (10%)

14 n b/d other industrial activity (16%)

Power & heat generation

5 Mn b/d power generation (6%)

9 Mn b/d heat generation (10%)

4 Mn b/d other uses (5%)

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