Tue Dec 15, 2009 3:34pm IST
By Joe Silha
NEW YORK (Reuters) - Exxon Mobil's $30 billion bid for XTO Energy on Monday could signal confidence the price of cleaner burning natural gas will rally against crude prices to more normal levels in the mid-term.
High inventories, light summer demand, and near record high natural gas production in 2009, coming mostly from growth in shale gas output, kept gas prices under pressure for most of this year, with quotes in September sinking to a 7-1/2-year low below $2 per million British thermal units.
The weak fundamentals drove down natural gas prices relative to crude to more than 25 -- meaning crude prices in absolute terms were trading at more than 25 times higher than gas -- after the price ratio between the two markets hovered between 7 and 8 for most of the decade.
But the ratio has since narrowed to 13 as crude prices slipped to $70 a barrel from recent highs above $80 due to high inventories, while gas prices moved back above $5 as winter weather arrived to drive up demand again.
"Natural gas prices are actually very low relative to crude on an energy equivalent basis. It could be that Exxon is playing that gap," said Earl Sweet, managing director at BMO Capital Markets in Toronto.
THE LONG VIEW
Analysts also said the bid makes sense for Exxon longer-term, noting demand for gas, which produces about half the carbon dioxide of coal, is likely to increase worldwide as nations struggle to meet climate change objectives.
Source: http://in.reuters.com/article/businessNews/idINIndia-44728520091215?rpc=401&feedType=RSS&feedName=businessNews&rpc=401
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