SLV rose 5.70% today.
The oil to natural gas price ratio is 24.5 to 1 (WTI Cushing Spot to Henry Hub Spot). Amazing.
I have included the median ratio in the chart as a red trend line. How is the current ratio even remotely rational long-term? Energy is energy.
My only explanation is that Ben Bernanke grew up listening to the same music I did.
Well, Earl put down his bottle, mashed his foot down on the throttle, and then a couple a boobs with a thousand cubes in a nineteen-forty-eight Peterbilt screamed to life.
We woke up the chickens.
As hard as this is to believe, I still lean deflationary once the dust settles. Mountains work both ways.
November 4, 2010
Hooters Shows Why Deflation May Never Go Away: William Pesek
Anyone who still thinks falling prices are a cyclical phenomenon isn’t looking closely. It’s secular, and the sudden ubiquity of discount outfits shows how Japanese consumption has become a race to the bottom of the pricing spectrum.
Source Data:
EIA: Natural Gas Wellhead Price
EIA: Cushing, OK WTI Spot Price FOB
I corrected some of my commentary.
ReplyDeleteThe oil to natural gas price ratio did not rise today. It simply sits at a very elevated level.
I think crude oil is easier to turn into some chemicals than Natural gas.
ReplyDeleteFor example, to turn CH4 into C8H18 requires 7 reactions, but snipping a C8 chain off a long C-chain is just one reaction.
I think - I'm not a Chemical engineer.
- jus me
Simple: Crude can be shipped to wherever there is demand, NG cannot.
ReplyDeleteThe US currently has an oversupply in NG. The current ratio makes it attractive for industry / consumers to switch from oil consumption to NG consumption. And this will happen, over time. But it's a slow process, so the ratio could be out of balance for quite some time.
jus me,
ReplyDeleteI'm no chemist either. For what it is worth, I grew up using heating oil and now use natural gas. Maybe there is some hope we can break some of our oil dependence.
Tim,
I think we're pretty much in agreement on this. I'm mostly just asking if it makes any sense for the ratio to stay that high "long-term". I don't think it does. I also suspect at least some of it is due to oil speculation. Natural gas would seem harder to hoard.