Wednesday, January 30, 2008

Oil vs. Natural Gas

The ratio of the price of oil, in comparison to natural gas, is very high right now compared with historical standards. This article does a good job of explaining this (it's a few months old, but the ratio is still roughly the same).

The author is not a fan of going long nat gas and shorting oil - but I disagree. I think that is a logical 'hedge fund-esque' strategy, given the current price discrepancy. Oil could have trouble holding at current levels if the US does fall into recession (I think we're already in one). Sure, most of the growth in oil demand is from China - but will it continue at this pace if the US consumer stays in the fertile position?

Anyway a viable strategy to consider - though I am still partial to the grains and softs at this point in time.

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