NATURAL GAS IS STILL A BARGAIN
Natural gas is up 79% in just six months…
It bottomed in April at about $1.90 per mcf (thousand cubic feet). Today, it’s trading at $3.40. Despite the big rally, natural gas is still cheap on an historic basis relative to oil…
Today’s chart compares the price of natural gas to the price of oil.[ad#Google Adsense 336×280-IA]Historically, these energy cousins have a 10-to-1 relationship.
That means it takes about 10 units of natural gas to buy one unit of West Texas Intermediate crude oil.
That ratio reached an all-time high of 55 in April.
Now, it has fallen to a more reasonable level near 25.
But that’s still much higher than usual.
One of three scenarios has to happen to bring the ratio back in line.
Either (1) the price of natural gas must rise… (2) the price of oil must fall… (3) or some combination of the two.
– Jeff Clark
Source: Market Notes