1) Slightly. The ratio of the two markets is volatile and dynamic. Don't obsess over "historical norms". 2) Don't get too hung up on "physics" over market forces. 3) Natural gas is more of a (USA) domestic commodity. Crude oil is more of an international commodity. Tread/trade carefully.
Thanks for the insight. After digging into more of the big picture on NG over the weekend, I'll stay away from it. Thanks again.
In today's market, there is little correction. Some traders still trade the old way, but it is not working. They are two uncorrelated energy products.
In normal market conditions, NG and Cl are correlated. Hoarding of oil, and industrial metals by China is a major driver in these markets. Since China is not storing any NG we are seeing a major divergence in prices.
So the question is CL going lower, or is NG going higher. This divergence isn't going to last forever. I see CL trading $55 by year end. Chinese artificial demand can't last forever, and OPEC decision to maintain quotes opens the door for lower prices in the future. The only caveat being dollar weakness, and I don't see that happening due to equity markets will trending lower till year end. Sell into crude rallies and buy into NG dips.
Is this a contrarian strategy? I would have ton of loss if I had followed this. CL is closely related to global economy, or the equity market. If global economy shrinks again, I see CL dropping somehow. But what is the prediction for US and Euro GDPs? And the global GDP? Most predictons are positive. But gas? We have all the shale plays. There is plenty, not even counting the LNG. But should NG be worth $3 or $6? Traders decide.
The ratio got out to about 28 and is still at about 25. If it was so easy to convert from one to the other, the spread would have had a very hard time getting to this extreme. pickens is correct, we should be driving around in nat gas cars. but until this is the case, this spread shows that nat gas is basically its own market. (funny how no one is complaining that speculators are driving down the nat gas market )
Since nat gas is not being horded, it might be the real barometer for the current economy. Equities, oil, and base metals are running higher on the anticipation of a recovery, while nat gas is tanking alongside the real economy.