Unconventional Wisdom- Energising the US recovery:: Macquarie Research

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Unconventional Wisdom
Energising the US recovery
Event
 Despite bitterly cold weather in the US, natural gas prices have remained very
low.

Impact
 America is currently enjoying a boost from relatively low energy prices. Cheap
natural gas and relatively cheap oil prices are giving US producers a major
competitive advantage.
 Of course the vagaries of commodity markets mean that this advantage may
not last. Nevertheless it is worthwhile considering the implications of a
sustained period of subdued energy prices.
 Together with the weak US$ it would give US manufacturing a noticeable lift
and would help accelerate global rebalancing.
Analysis
 One of the most interesting developments of recent months has been the
price of natural gas in the US. Normally a period of severe winter weather lifts
gas prices significantly. Yet so far in 2011 this has not happened.
 Remarkably, the steady trend in the US price of natural gas has accompanied
a rising trend in the price of oil. This divergence has been evident for almost
two years, suggesting that the old relationship between these two
commodities may not be as strong as it used to be. The lack of convergence
when the weather turned cold can only strengthen this conclusion.