Crude Oil / Natural Gas Ratio Heading Higher

crudeoil.naturalgas

Ratio of Crude oil price to natural gas price (click to enlarge)

The ratio, which is said to have a historical ratio of 10, is now over 20 and looks to head higher.

crudeoil.natgas.mrci

(click to enlarge)

The equation to generate the chart is:

=(1000*’CL Z0′ – 10000*’NG Z0′)

At FutureSource, click on “Charts” and enter the above equation in the cell labeled “Symbol or Contract” under “Get A Chart.”

Here’s the math:

December crude oil: $86.50 x 1,000 barrels = $86,500

December nat gas: $5.271 x 10,000 btu = $52,710

Hence, the difference of approximately $33,790 (as of the close May 5).

december.crudeoil.naturalgas

(click to enlarge)

When compared to the YoY spread, there is an 84% correlation according to Moore Research. The data on the Y-axis signify the difference in notional values between the 2 contracts.

What does this signify?

For the ratio (quotient) to rise, either one of two things must happen:

– Crude oil ranges and natural gas falls

– Natural gas ranges and crude oil rises

or both!

– Crude rises and natural gas falls.

To keep things in perspective, below is a historical relationship between Crude Oil and Nat Gas using a continuous chart.

CL.NG.continuous.monthly

(click to enlarge)

Top 2 charts and bottom chart can be generated at FutureSource, a free site.

Crude oil / natural gas spread analysis courtesy of Jerry Toepke and Melissa Moore at Moore Research Center, Inc. This is premium site, but you can try a 14-day risk free trial.

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