Oil to National Gas Ratio Highest Ever

With oil rallying and natural gas continuing to plummet on a daily basis, the ratio of oil to natural gas is at its highest level since at least 1990 at 26.35.

When the line is increasing in the chart below, oil is outperforming natural gas, and as shown, it has been doing that now since the end of 2008.

The ratio is currently in uncharted territory, so who knows when we'll see some reversion to the mean.

Comments

[ScroogeMcduck:]

One important thing I have learned from bad trades.

Stay away from falling knives.

Aug 24 01:21 PM

[Mark Bern:]

Reversion to the mean will happen eventually, but NG has a lot of surplus stocks in storage to be worked off first. We probably won't see the bottom in NG prices until we see a change in the trend in weekly storage numbers. It will take a cold winter to start that process. I did read a couple of posts indicating that the geese have started their migration very early this year. However, I'm not ready to wager on a NG comeback just yet. When I do, I'll use some Canadian royalty trusts to ride the wave. The dividends will help keep a floor under my potential losses.

Aug 24 01:45 PM

[Mook:]

This ratio used to be much more meaningful as there was significant capacity for power generators to switch between natural gas and liquied fuels. Due to the cost of emission credits and the general push to go "green" this switching capacity this switching option is greatly reduced. And it really doesn't have a meaningful swing on the supply/demand changes on either natural gas or oil. So the fact the ratio is at new highs really only speaks to the underlying fundatmentals of both products, not the relationship between them.

Aug 24 03:32 PM

[Anthony Alfidi:]

There have also been a lot of new NG discoveries in North America lately. More supply, lower price (and less volatile due to more diverse sources).

Aug 25 07:29 AM

[Ozarker:]

There shouldn't be any "mean" to go back to. Oil and Natural Gas have only one thing in common. When they burn they create heat. Why we ever had a ratio based on BTU's created is beyond my understanding. They are two different commodities and should be treated as such. Their price reflects the supply and demand of each one and not the relationship to each other.

Aug 25 09:06 AM

[Road Runner:]

With very high oil prices in the last 2 years, many people in the Northeast, that heated their homes with heating oil, converted their furnaces to natural gas. I see this trend increasing now that the ratio is so high. It probably won't have much effect on this ratio because only a small portion of oil goes to heating oil.

Aug 25 11:06 AM

[toobad41:]

This ratio is stupid. It has no significance at all in the market place. Gas is and will continue to be the major play in the United States and Canada for years to come. It is much cheaper to produce and sell than oil. Oil has a lot of cost issues, environmental issues, depletion issues, litigation issues.

Aug 25 01:45 PM

[jstratt:]

I would like to know how Oil and Gas are measured in the chart above ( ie BTU for BTU).

So far a silly unilateral cap and trade scheme with huge Oil imports seems to be preferred to Natural Gas usage. It would allow broad additional taxation and the enrichment of Goldman Sachs and traders at the expense of the middle class citizens.

Utilizing Natural Gas would be a much better alternative. Here are the reasons against Cap and Trade

1) All taxpayers would see tax increases and in the midwest it would be huge.

2) The US would mothball coal utility plants unilaterally while China builds something like 1 a day.

3) Goodbye many good utility jobs

4) Goodbye many good Railroad jobs. When I see trains most of the cargo is coal.

5) Goodbye many mining jobs

6) Goodbye many small town and rural area jobs in general as the economic lifeblood is further sucked away

7) With more expensive energy goodbye more industry

but it would be good for Goldman Sachs and traders

Aug 25 09:45 PM