Gravity works in the oil market, but not so far for natural gas

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Crude oil continued to slide today, but the natural gas market apparently didn’t get the memo about lower prices.

Natural gas futures jumped to the highest level since December 2005 as some traders focused on predictions for a nasty hurricane season that could interrupt gas supplies from the Gulf of Mexico.

Near-term gas futures in New York rose 16 cents to $12.38 per million British thermal units. The price has risen 6.3% since May 21 -- while crude oil has fallen 8.2% in the same period, including a drop of $2.01 to $122.30 a barrel today.

Oil has been everybody’s favorite commodity to hate this year as the price has surged, but it’s a piker compared with the rally in natural gas. The latter is up 66% year to date; oil is up 27%.

Crude prices pulled back today after the government reported a further drop in gasoline use and a jump in inventories, as noted here. At last, high oil prices are bringing on what economists like to call ‘demand destruction.’ We’ll just call it what it is: Many consumers can’t afford to drive their big honkin’ SUVs anymore.

As for natural gas, this is the time of year when U.S. inventories are rebuilt after the winter draw-down. Gas supplies currently are about 17% below their level of a year ago, so that’s a factor underpinning prices.

Also, as this Bloomberg story notes, a widely followed forecaster is predicting four major Atlantic hurricanes this year. That is encouraging natural-gas bulls who see the potential for Gulf supply interruptions. (Which, by the way, could affect oil too, but let’s not go there for now.)

Summer weather is another variable for natural gas prices. Extreme heat could boost air-conditioning demand and thus energy use by natural-gas-fueled power plants.

So even if you aren’t paying The Man more at the pump, you may be paying him more at the thermostat.