Oil to Natural Gas Ratio Comes In
TUESDAY, MAY 18, 2010 AT 04:46PM
Oil has fallen off a cliff over the past couple of weeks, dropping from the high $80s to the high $60s. As shown in the first chart below, oil is testing two prior lows it has made over the past six months. If oil can hold here, it will make a triple bottom that will harden support at $70 even more. But the more support gets tested, the harder the fall can be if support fails to hold. So if oil can't hold and make a triple bottom here, it could be in store for a more significant drop.
Interestingly, natural gas has done well recently as oil has tanked. As shown in the chart below, natural gas has developed a nice base over the last two months, and it just broke above the top of the sideways range it has been in. Natural gas is currently nicely above its 50-day moving average, while oil is significantly below its 50-day.
The recent weak performance in oil and strong performance in natural gas has caused the ratio of oil to natural gas to pull back quite a bit in a short period of time. As shown below, the ratio had been elevated leading up to the shift in performance between the two energy sources, but it still has plenty of room to drop before reaching extremes in the other direction.
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in Commodities
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