A chart worth studying: Natural gas vs. crude prices
Today's Financial News - Posted August 28, 2009
The divergence between crude and natural gas prices is a conundrum investors are scrambling to figure out. Every day, more and more money is pouring into the trade. If they are wrong, the scene could be horrific this winter.
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The commodities market looks like it never has before. Thanks to a weak dollar, uneven global growth patterns and more government intervention than ever before, the world’s miners and drillers are facing an industry like none has ever been forced to endure.
The action is driving traders bonkers, especially those that track the natural gas markets.
The huge quantities of gas buried beneath the earth’s surface offer a shot at clean, cheap energy but it appears as though nobody wants anything to do with the stuff.
After surging to incredible prices last year, the natural gas market fell flat on its face to seven-year lows yesterday as word spread that inventories are hitting levels even higher than the pessimists called for. A
The fact is natural gas inventories are going to be 100% full later this year, yet drillers are tapping their freshly drilled shale deposits as if somebody actually wants the stuff.
Who is going to win…The drillers betting that demand will pick up this winter or the growing pack of bears saying we have not even come close to the bottom of the market?
As you read this, I am up to my receding hairline in my latest industry report, which will detail exactly what is going on and who will win, no matter what happens this winter.
Until the report hits the presses, this chart should help to hold you over:
It helps to illustrate a topic many of us have been discussing over the past year, the divergence between crude prices and natural gas prices.
Typically, crude trades somewhere in the region of 8 to 10 times natural gas prices. But lately, that figure has been closer to 30 times natural gas price. It is unheard of.
Almost everybody thinks the trend is bound revert to the mean, but the chart shows prices continue to move inversely.
What makes this topic so interesting is every day, more and more investors are pouring money into the trade, betting natural gas prices will surge. If they miss the mark, real trouble could be ahead.
As of now, all I will say is this is going to get very, very interesting. There are huge amounts of money on the line.
Look for details of my report very soon.
Next Article: TFN eNews 08/28/2009: Which Swine Flu Vaccine stock just produced 70% gains?
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