For the first years of this decade, the price of gas for electricity generation shadowed the price of oil. If oil prices fell, so did gas prices, and if oil prices rose, gas followed suit. Market forces are the reason why. Energy customers switch from oil to gas as oil prices rise, pushing up demand for gas, which pushes up its prices. As oil prices fall below those of gas, customers switch back, causing gas prices to drop as well.
Between 2000 and 2005, the largest discrepancy between oil and gas prices in America, according to the US Energy Information Administration (EIA), was no more than about 20%. Starting in 2006, however, oil became more expensive than gas and the discrepancy in 2007 was 67%, according to EIA data. The gap between the two in Europe was less last month than in the US, but oil was still more expensive than gas.
Whether the link between the two will be forged again, only time will tell. Several industrial processes, as well as commercial customers may switch from oil to gas, pushing up gas prices once more.
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