The ratio of crude oil to natural gas futures prices on the New York Mercantile Exchange is near a record high, suggesting oil futures may be entering overbought territory.
Crude oil prices at the NYMEX settled at $99.63 per barrel on Tuesday, their highest close since September 2008. In comparison, natural gas prices settled at $3.873 per milion BTU, near their lowest since November 2010. At the current levels, the ratio between both commodities stands at 26 to 1.
- Looking at data going back to early April 1990, the average ratio of crude oil to natural gas futures prices stands at 10
- The average ratio of oil to gas in the last 5 years stands at 13
- During Tuesday's trading session, this ratio hit as high as 26
- The record level is 27, reached on September 3, 2009 (By September 30, 2009 this ratio fell to 14.6)
The divergence of these energy commodities has some investors wondering if oil prices may be due for a pullback.
Indeed, the average price for natural gas in the past twelve months stood at $4.210 / million BTU, while the average price for crude oil over the same period was $81.60 / per barrel. The five year averages for the two are $6.187 and $76.86, respectively. If both commodities were to move to their averages, natural gas will have a significant move to the upside.
Additionally, the last time natural gas prices traded above $6 was on January 2010, while the last time oil traded below $82 was on November 2010.
Below are some companies that could benefit from a rebound in natural gas prices.