Oil and Natural Gas Futures Diverge Under Shadow of Government Shutdown

Michael Teague  |

While stocks bravely rallied in the face of the shutdown of the US government that began on Tuesday, oil and natural gas prices diverged.

West Texas Crude contracts for November delivery were down 1.10 percent to $101.20 per barrel, while the same contracts for Brent crude dipped 1.22 percent to $107.05 per barrel.

Meanwhile, natural gas contracts destined for a delivery date of November 13 were up nearly 2 percent to $3.63 per million BTUs on the New York Mercantile Exchange.

Crude prices have come down as a result of several factors. Against the backdrop of the 3-year old civil war in Syria that continues to rage, US Secretary of State John Kerry met with the Iranian Foreign Minister on the sidelines of the UN General Assembly meeting in New York City last week, in the highest-level diplomatic contact between the two countries since the revolution of 1979.

It was a stark and sudden contrast to US threats of military strikes against Syria, a close ally of Iran, that seemed a near certainty not three weeks ago. The apparent willingness of all parties to resort to dialogue rather than increased hostilities has eased concerns of supply disruption in the region.

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The recent resumption of Libyan oil production, much of which had been brought to a standstill for extended periods by the country’s many unruly revolution-era militias, has also contributed to the downward pressure on crude prices.

The current impasse in Washington, D.C. over the continued functioning of the federal government, and the expected impasse over the debt ceiling over the coming weeks has also played its part in lower oil prices.

Natural gas, on the other hand, has been the beneficiary of recent bullishness around independent producers in the US. Last week, Goldman Sachs (GS) analysts returned from a visit to the Bakken Shale, and initiated coverage on Continental Resources (CLR) and Oasis Petroleum (OAS) . Both stocks jumped in reaction to the news, and were also up on Tuesday, 3.6 and 2.4 respectively.

Goldman Analysts were particularly enthusiastic about independent gas producers operating not only in the Bakken Shale, but also in the US’s many other shale prospects such as the Marcellus that lies underneath large swathes of the Northeastern portion of the country.

[Image Courtesy of Wikimedia Commons]

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