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Spread between US oil and natural gas hits 20-month high

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The 88 percent rebound of US crude futures since hitting a 13-year low in February widened the spread between oil and natural gas to its highest level in 20 months on Wednesday.

[NEW YORK] The 88 percent rebound of US crude futures since hitting a 13-year low in February widened the spread between oil and natural gas to its highest level in 20 months on Wednesday.

The widening spread could prompt a shift in US production, as drillers tend to seek more valuable oil and natural gas liquids instead of dry gas when oil prices are relatively high.

US crude futures traded over US$49 a barrel early on Wednesday, up from around US$26 in February, the lowest level since 2003.

US natural gas futures, meanwhile, have mostly held near US$2 per million British thermal units over the past few months.

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The higher oil prices and flat gas has moved the oil-to-gas ratio further from its 6:1 parity on an energy equivalent basis over the past few months.

The ratio is currently at 25:1, the highest since September 2014. That ratio peaked at 54:1 in April 2012 and bottomed at 3:1 in December 2000.

Crude prices averaged 19 times over gas in 2015, the lowest in five years, compared with 22 times over gas in 2014 and a five-year average (2011-2015) of 25 times over gas.

The premium of crude over gas in million British thermal units was about US$6.30, the highest since July 2015.

REUTERS

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