Wednesday, August 26, 2009

The Oil-Natural Gas Ratio At Record High

Ratios are often used to anecdotally determine imbalances in financial markets. We've talked about this in pairs trading posts, the oil-semiconductor ratio, etc. One we have not talked about is the oil-natural gas ratio which is at a record high. Record may be a misnomer but the dynamics are well out of whack. This supports our position that oil is substantially overvalued and is eventually going to bust. Of course, the converse could be argued that natural gas has bottomed. Yet there is no fundamental dynamic which will cause natural gas to rise. That includes upcoming winter demand. We have record natural gas stocks, ample supply and weak demand. Even the seasonal winter dynamic of natural gas is suspect this year.

posted by TimingLogic at 5:32 AM