Middle East Tensions Spark Oil-Gas Price Divergence
Oil and gas prices diverged on Thursday as Middle East tensions escalated. According to Bloomberg, intensified US-Iran strikes prompted a slight increase in US crude (WTI) to $91.37 a barrel, while Brent slipped to $95.43.
The divergence between oil and gas prices can be attributed to the different delivery points and trading flows of each benchmark. Geopolitics typically adds a 'risk premium' to oil, causing traders to pay more for barrels in anticipation of potential disruptions to supply routes or production. However, this time around, natural gas went in the opposite direction due to rising US storage levels.
US gas inventories increased by 30 billion cubic feet in the week ended August 28, leading to a decrease in Henry Hub gas prices by 1.5% to $2.92 per million British thermal units. This signals a looser near-term balance between supply and demand for natural gas, which tends to put pressure on wholesale gas prices.
The separation between oil and gas prices was also reflected in the stock market, with energy equities not following suit despite elevated crude prices. The NYSE Energy Sector Index and the Energy Select Sector SPDR Fund (XLE) were slightly lower, while the Dow Jones US Utilities Index gained 0.9%.