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Oil Price to Natural Gas Ratio

What is 'Oil Price to Natural Gas Ratio'

A mathematical ratio comparing the prices of crude oil and natural gas. In the oil price to natural gas ratio formula, the oil price is the numerator and the price of natural gas is the denominator. This ratio is used by energy analysts, traders and investors to gauge the market of oil versus that of natural gas.

Explaining 'Oil Price to Natural Gas Ratio'

The higher the oil price to natural gas ratio, the greater the demand for oil. For example, a ratio of 6:1 means that a barrel of crude oil costs six-times as much as an Mcf of natural gas. If the ratio declines, then difference in the prices of the two commodities is narrowing.


The trading strategy supported by this ratio is to long oil when the ratio is below its historic average, and long gas when the ratio is excessive compared to previous time periods.


Further Reading


Asymmetric and nonlinear pass-through of crude oil prices to gasoline and natural gas prices
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Is hub-based pricing a better choice than oil indexation for natural gas? Evidence from a multiple bubble testIs hub-based pricing a better choice than oil indexation for natural gas? Evidence from a multiple bubble test
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Different behaviors in natural gas production between national and private oil companies: Economics-driven or environment-driven?Different behaviors in natural gas production between national and private oil companies: Economics-driven or environment-driven?
link.springer.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Oil price volatility and stock price fluctuations in an emerging market: evidence from South KoreaOil price volatility and stock price fluctuations in an emerging market: evidence from South Korea
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Oil price volatility, financial institutions and economic growthOil price volatility, financial institutions and economic growth
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Oil prices and the stock prices of alternative energy companiesOil prices and the stock prices of alternative energy companies
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Financial ratios and corporate endurance: A case of the oil and gas industryFinancial ratios and corporate endurance: A case of the oil and gas industry
onlinelibrary.wiley.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Natural gas prices and stock prices: Evidence from EU-15 countriesNatural gas prices and stock prices: Evidence from EU-15 countries
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

Risk factors in stock returns of Canadian oil and gas companiesRisk factors in stock returns of Canadian oil and gas companies
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …

A long-term view of worldwide fossil fuel pricesA long-term view of worldwide fossil fuel prices
www.sciencedirect.com [PDF]
… In the long run, factors such as capacity conversion, natural gas-to-oil substitution, different costs of transportation and storage, and disparities in technological improvements may lead to asymmetry in price pass-through …



Q&A About Oil Price to Natural Gas Ratio


What are some examples of benchmark crude oils?

Examples include West Texas Intermediate, Brent Crude, Dubai Crude, OPEC Reference Basket, Tapis crude, Bonny Light and Urals oil.

How does a higher ratio indicate greater demand for oil?

A higher ratio means that a barrel of crude oil costs six-times as much as an Mcf of natural gas.

Why might someone want to measure density or specific gravity?

Someone may wish to measure density or specificgravity so that they can compare different types of liquids with each other for example comparing gasoline with motor oil (motor oils tendto be heavier than gasolines). Another reason someone may wish to measuredensityorspecificgravityistodetermineifsomethinghasanormalamountofwaterinsidethematterofthefactthattheamountofwaterinthemattercanaffecttheweightandthereforethedensityorspecificgravityofamaterialsothatitcanbeusedtotestforfrauds(suchaswatereddown

What are the two commodities being compared in this ratio?

Crude oil and natural gas.

What does the term "oil" refer to in this context?

Oil refers to a barrel of benchmark crude oil.

What is the price of oil?

The price of oil refers to the spot price.

When would you use an API gravity scale?

You would use an API gravity scale when measuring density or specific gravity.

What trading strategy can be supported by this ratio?

This trading strategy supports longing crude when the ratio is below its historic average, and longing gas when the ration is excessive compared to previous time periods.

What is the ratio used for?

The oil price to natural gas ratio is used by energy analysts, traders and investors to gauge the market of oil versus that of natural gas.

Where is there a differential in the price of a barrel of oil based on its grade?

There is a differential in the price based on its grade determined by factors such as its specific gravity or API gravity and its sulfur content and location for example proximity to tidewater and refineries. Heavier sour crudes lackin""

How do you determine if something lacksin"?

You can determine if something lacksin" by looking at it.

When would you use a sulfur content scale?

You would use a sulfur content scale when measuring density or specific gravity.

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