Oil Price to Natural Gas Ratio

AAA

DEFINITION of '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.

INVESTOPEDIA EXPLAINS '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.



RELATED TERMS
  1. Oil Field

    A tract of land used for extracting petroleum, or crude oil, ...
  2. Proved Reserves

    A classification used in mining sectors that refers to the amount ...
  3. Price-Earnings Ratio - P/E Ratio

    A valuation ratio of a company's current share price compared ...
  4. Natural Gas ETF

    Exchange-traded funds (ETFs) that invest in natural gas futures ...
  5. Earnings

    The amount of profit that a company produces during a specific ...
  6. Wealth Management

    A high-level professional service that combines financial/investment ...
RELATED FAQS
  1. How can I find net margin by looking a company's financial statements?

    In finance and accounting, financial statements represent the fundamental means of analyzing a company's financial position, ... Read Full Answer >>
  2. What can working capital turnover ratios tell a trader?

    A company's working capital turnover ratio is traditionally positively correlated with business performance. A high, or better ... Read Full Answer >>
  3. What is the difference between JIT (just in time) and CMI (customer managed inventory)?

    Just-in-time (JIT) inventory management focuses solely on the need to replenish inventory only when it is required, reducing ... Read Full Answer >>
  4. What are some examples of Apple and Google's best-selling product lines?

    There are many good examples of product lines in the technology sector from some of the largest companies in the world, such ... Read Full Answer >>
  5. What is a negative write-off?

    A negative write-off is a write-off conducted by a company or accountant after deciding not to pay back an individual or ... Read Full Answer >>
  6. How can tariffs cause inefficiencies in domestic industries?

    Any government regulation naturally creates inefficiencies in a pure supply and demand marketplace. When it comes to the ... Read Full Answer >>
Related Articles
  1. Active Trading

    Uncovering Oil And Gas Futures

    Find out how to stay on top of data reports that could cause volatility in oil and gas markets.
  2. Mutual Funds & ETFs

    Investing In Oil And Gas UITs

    Unit investment trusts provide direct exposure to the energy sector, fueling better returns.
  3. Fundamental Analysis

    Accounting For Differences In Oil And Gas Accounting

    How a company accounts for its expenses affects how its net income and cash flow numbers are reported.
  4. Mutual Funds & ETFs

    ETF Analysis: Market Vectors Russia

    Learn about Market Vectors Russia ETF, its top holdings, as well as cyclical and political risks associated with investing in the Russian market.
  5. Investing News

    The Dummies' Guide To The Iran Nuclear Deal

    What are the specifics of the Iran nuclear deal? Is it wonderful or horrible?
  6. Stock Analysis

    Southwest & Cheap Oil: The Perfect Combination?

    Discover how falling oil prices (and well-timed futures contracts) benefit Southwest Airlines.
  7. Fundamental Analysis

    Explaining the Common Size Income Statement

    A common size income statement expresses each account as a percentage of net sales.
  8. Professionals

    What Does an Auditor Do?

    An auditor ensures that organizations maintain accurate and honest financial records.
  9. Fundamental Analysis

    Calculating the Net Debt to EBITDA Ratio

    Financial analysts typically use the net debt to EBITDA ratio to determine a company’s ability to pay its debt.
  10. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.

You May Also Like

Hot Definitions
  1. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  2. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  3. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  4. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  5. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
  6. Himalayan Option

    An exotic equity option belonging to a class known as mountain range options. Himalayan options are based on a basket of ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!