Not Bullish on Natural Gas Just Yet

The ratio of oil to natural gas is at its highest level since at least 1990 at 26.35.

However, there is a glut of natural gas in storage, thanks to the recession and the immense amount of exploration during the energy bubble last year.

The lower prices will probably lead to a further pullback in exploration, which is a setup for an eventual boom. But I'm not bullish on natural gas yet.

The oil/natural gas ratio could also revert to the mean if the price of oil fell. In fact, that may be the more likely scenario given the speculative aspects of the current oil rally.

Comments

[Road Runner:]

I agree in total.

Aug 25 03:02 PM

[BrotherMaynard:]

fyi...go out two months on the curve and that ratio drops in half

i think the "blow-out" spread of natgas/crude is indicative of the rampant paper demand inherent to commodity markets in the current environment...similar to credit spreads last year, these "dislocations" are almost always caused by out of control money flows rather than physical fundamentals.

Aug 26 01:34 AM