The Bubble that Popped in the Oil to Natural Gas Ratio
- Posted by JC Parets
- on May 16th, 2012
Can we discuss this bubble that popped in the Oil:NatGas ratio a few weeks ago?
We’ve been talking about this for a long time. But even more so recently as the bubblicious ratio was reaching historic and unsustainable levels.
Look at this thing crashing before our very eyes:
The Crude Oil to Natural Gas ratio peaked just above 54:1 on April 19th. Today, with Oil at $92.69 and NatGas at $2.62, we’re looking at about a 35:1 ratio. This represents a 35% move in under 4 weeks. We’re already beyond a 50% retracement from last year’s lows and prices in this ratio are falling fast.
Nothing lasts forever and when these bubbles pop, they can get ugly.
So as our boy Johnny Keynes would ask, ‘Can markets remain irrational longer than we can remain solvent?’ Yes. And during bubbles like these they usually do. In this case, it probably did for a lot of investors.
But going forward, I don’t see any bottom in sight. The average over the last 20 years has been a 10:1 ratio. We’re no where near that. More importantly, as technician John Roque always puts it, “We’re in a reversion beyond the mean business“. In other words, when prices mean revert, especially after being this extended, they tend to trade beyond historical averages. In this case, I would not be shocked to see single digits.
These price targets are purely speculation, obviously. It doesn’t even matter how low I think it goes because we’re no where near those levels. But the point is: The bubble has popped and the path of least resistance is lower.
Full Disclosure: Nothing on this site should ever be considered to be advice, research or an invitation to buy or sell any securities, please see my Terms & Conditions page for a full disclaimer.blog comments powered by Disqus
J.C. Parets is the Founder & President of Eagle Bay Capital, LLC. He is a 10-year veteran and Market Technician who actively manages money incorporating Technical Analysis and Behavioral Finance into his practice. JC’s work has been featured regularly on CNBC, Fox Business, Bloomberg, Business News Network, Wall Street Journal and Yahoo Finance among many other financial media outlets. More...
- What I’m Waiting For To Buy Base Metals
- The Must Follow Podcast: JC Parets
- Long Crude Oil and Short Treasury Bonds?
- Fox Business: Time To Jump Into Russia?
- I Like Energy and Emerging Markets for Q2
- Audio: The Current Market Environment
- American Express Approaches Make or Break Point
- Benzinga Fintech Awards Gala April 8th
- BNN Appearance: Crude Oil, Transports & Google
- The Chart The Whole World Is Watching
Archive by Year