After peaking in early July, natural-gas prices have cooled off. Both crude-oil and natural-gas prices have dropped sharply in recent days...

Share story

Analysis |

After peaking in early July, natural-gas prices have cooled off.

Both crude-oil and natural-gas prices have dropped sharply in recent days as Hurricane Gustav turned out milder than predicted. The Gulf of Mexico, where the storm hit, is the source of about 15 percent of the nation’s natural gas and accounts for about 25 percent of domestic oil production. But even before the storm, natural-gas prices were falling, creating an opportunity for investors, analysts say.

Natural gas is down more than 40 percent from its high earlier this summer of just over $13.57 per million BTU while crude oil is down 20 percent from its high above $145 a barrel.

With natural gas down twice as much as crude oil, some analysts say it represents a better value for investors.

Oppenheimer & Co. analyst Fadel Gheit says oil prices have become “much more inflated” than natural-gas prices. “Geopolitics and government action, or inaction have allowed financial players to manipulate oil prices to unsustainable levels,” he says.

Bespoke Investment Group co-founder Justin Walters says natural gas is a better bet than crude, noting that natural-gas prices typically rally in the final four months of the year due to winter-heating demand.

Buying commodities directly is risky but investors can purchase sector funds such as FBR Gas Utility Index (GASFX) and U.S. Natural Gas (UNG), as well as stocks of gas exploration and production companies, such as Stone Energy (SGY), Apache (APA) and ConocoPhillips.