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Natural gas has always been less expensive than crude oil. But today, the market is putting a huge value on crude while considerably discounting natural gas prices.
That discrepancy creates a ripe profit opportunity for investors who love to buy low, and sell high. Let me explain…
Natural gas, trading at $3.60 per million Btu (MMBtu), is trading at a historically low price. Specifically, natural-gas is priced low – very low – relative to oil.
This is good news for anyone interested in buying low. Natural gas is morphing into an oil alternative, which makes the spread between the two energy sources extremely compelling.
The spread between West Texas Intermediate crude and natural gas is near a historical high. The spread, currently at 28, means a barrel of WTI crude costs 28 time more than one MMBtu of natural gas.
The spread was higher only once before – back in 2012. And that was a true outlier. Natural gas prices had pushed below $2.00 as new fracking technologies led to an unprecedented increase in natural gas supply, which swamped the market and crushed the price.
Natural gas prices at $2.00 is unprofitable for everyone. Producers – being rational agents – naturally cut production and natural-gas prices quickly recovered.
I see little impetus for natural gas to challenge last year’s low. I say that because the breakeven price for producers in the most efficient shale properties is between $3.25 and $4.00. When natural gas falls below $3.50, producers reduce production. And this creates a “floor” for the price of natural gas.
On the other side of the coin, West Texas Intermediate crude continues to hold above $100. And that’s likely to continue.
WTI crude demand is surging due to the ongoing fracking expansion. At the same time, it’s become evident that the OPEC nations are less able to serve growing global demand due to geo-political disintegration of the Middle East.
In short, both natural gas and WTI crude have a price floor neither is likely to break.
Natural gas’ low price relative to oil naturally motives a switch to the lower-priced fuel. Indeed, that’s the case. An American Gas Association study shows that more than 500,000 houses in the Northeast switched from oil to natural gas for their primary heating fuel between 2000 and 2010.
More houses will follow: Last winter, despite abnormally mild temperatures, it cost the average Northeast homeowner $2,087 to heat his home with oil. It cost the same average Northeast homeowner only $832 to heat his home with natural gas.
But there is an even bigger opportunity to exploit the natural-gas price advantage…and that’s in transportation.
Transportation company fleets are ripe for a switch. Transportation-dependent firms like Waste Management (NYSE: WM), Ryder (NYSE: R), FedEx (NYSE: FDX), and United Parcel Service (NYSE: UPS) have already converted a large portion of their fleets to natural gas. And they’re saving millions on their fuel bill.
The potential for more conversions is enormous, particularly for diesel-powered vehicles. The Wall Street Journal reports that 3.2 million big rigs burn 25 billion gallons of diesel annually. Almost seven million single-unit trucks, similar to those used by UPS and FedEx, consume another 10 billion gallons of diesel.
The investment team at Wyatt Investment Research views natural gas as one of the best value and growth opportunities of the next decade. And we want to help you profit from this huge growth trend.
My colleagues – Ian Wyatt and Tyler Laundon – are holding a live investing seminar to discuss the rapidly unfolding developments and profit opportunities. This live investing seminar takes place over the phone today at 2pm Eastern Time.
The event is called U.S. Energy Alert: 3 Profit Plays for 2014 and Beyond. I know Ian and Tyler will be sharing details on their favorite investment opportunities, including details on two of their top investment ideas.
If you’d like to be our guest at this free investing seminar, you must RSVP right now. Registration closes in just two hours, and I want to make sure you are able to attend. Just click here now to reserve your seat – absolutely free.