From FT Alphaville:
Stephen Schork, author of energy industry newsletter The Schork Report, has been pondering long and hard about the subject of natural gas on Tuesday.
You see, the historic correlations appear to be a little out of whack. As Schork observes: ‘Crude oil is dear, natural gas is not… is that abnormal?’
If prices were based on thermal content alone, the usual ratio of crude oil price per barrel to natural gas in dollars per MMBtu should be ≈6:1 according to the EIA. But as Schork points out (our emphasis):
As of last Friday the ratio between spot NYMEX WTI ($/bbl) to the corresponding Henry Hub contract ($/MMBtu) was 17.3:1. In today’s Chart of the Day we posted the NYMEX ratio (adjusted per contract points). Either way, upon first glance it would appear that natural gas is a buy relative to crude oil.
But while first appearances may suggest natural gas is ‘a buy’, Schork cautions that first looks can be deceiving....
...According to Schork if gas prices depended on nothing except crude we should really have seen an average natural gas price in May of $5.10.
Accordingly, Schork’s view is that natgas fundamentals should have been fuelling a more bullish market for some time already; technically speaking from weeks, if not months ago. Specifically prices should not have fallen from the $4.45 mid-May high.>>>MORE
Here's Alphaville's last NatGas piece, Natural Gas: "Strange deviations at the UNG ETF".