US natural gas prices have fallen to around $2 per million British thermal units (MMBtu) due to soaring supply and the mild winter in North America. But they now look far too low relative to production costs, to the price of gas in Europe and particularly Japan, and to the price of crude oil. We therefore expect the benchmark NYMEX Henry Hub future to be back at $4 by the end of this year and $6 within three years (both figures are at the high end of analyst forecasts). Elsewhere, we still expect the Brent-WTI spread in the crude oil market, which has recently shot out to $20 per barrel, to narrow again to $5 by the end of 2012.
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