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Thursday
Jun212012

Oil and Natural Gas Still Moving in Different Directions

For much of the last few years the prices of oil and natural gas have moved in opposite directions, where the price of oil has been trending higher while natural gas declined.  In the last couple of months, however, the prices of both commodities have reversed course as natural gas has rallied and the price of oil has declined.  As of this morning, the price of natural gas was not far from its high for 2012, while the price of WTI crude oil is trading near its lows for the year. 

As a result of the shifting course in the prices of both commodities, the ratio of oil to natural gas has seen a significant reversal.  After peaking out at a record high of 53.6 on April 19th, the ratio has now dropped 40% to its lowest level since December.  The ratio between the two commodities is still at extreme levels by historical standards, so it would take a much larger drop in the price of oil and a big rise in the price of natural gas before the Picken's Plan would no longer seem like a no brainer.  However, if the growing consensus view that the US economy will outperform the rest of the world pans out, the ratio between oil (a global commodity) and natural gas (a domestic commodity) likely has farther to fall.

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