The slow decline in the oil/natural gas ratio that has persisted through the year continues – this time oil is falling faster than natural gas as both are reacting to slower demand or expectations of slower demand. We are unconvinced that the price declines will continue, but it is much less clear which direction the ratio will move. OPEC+ has far more chance of keeping cash flows high by trimming volume to balance the oil market and the overwhelming strategic logic of such a move means that it is a likely path – there is no 10-20% boost to demand to be found by lowering prices. US natural gas is still on a medium-term demand march higher in our view and more limited E&P spending should keep the market balance quite tight. There are no near-term large increments of new LNG capacity on the horizon and consequently, inventory and pricing will likely bounce around on weather changes for a while. See more in today's daily report.
Source: Bloomberg, C-MACC Analysis, August 2021