Oil Price to Natural Gas Ratio


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.

BREAKING DOWN '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.

  1. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  2. Oil Field

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

    A classification used in mining sectors that refers to the amount ...
  4. Earnings

    The amount of profit that a company produces during a specific ...
  5. Natural Gas ETF

    Exchange-traded funds (ETFs) that invest in natural gas futures ...
  6. Elastic

    A situation in which the supply and demand for a good or service ...
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. Active Trading

    An Introduction To Depreciation

    Companies make choices and assumptions in calculating depreciation, and you need to know how these affect the bottom line.
  5. Economics

    The Biggest Oil Towns in Texas

    Learn about the boom of oil production in Texas cities and how the new surge of wealth into these cities is changing local economies.
  6. Stock Analysis

    What Chevron Hopes to Find in its Exploration of the Great Australian Bight

    Learn about Chevron's agreements that allow the oil company to explore the Great Australian Bight and the state of current Australian oil projects.
  7. Fundamental Analysis

    Using Decision Trees In Finance

    A decision tree provides a comprehensive framework to review the alternative scenarios and consequences a decision may lead to.
  8. Economics

    Understanding Tragedy of the Commons

    The tragedy of the commons describes an economic problem in which individuals try to reap the greatest benefits from a given resource.
  9. Investing News

    Keystone XL Rejected: Which Stocks Will Win, Lose?

    Are investors overestimating the Keystone XL Pipeline news? Here's a look at some of the stocks they're likely liking right now.
  10. Economics

    Could Saudi Arabia Really Go Bankrupt?

    The IMF warned that Saudi Arabia may run out of the financial assets needed to support spending within five years. Is Saudi Arabia's government doing enough?
  1. Is Qatar a developed country?

    Qatar is a developing country, according to the United Nations. However, as the country with the highest gross domestic product ... Read Full Answer >>
  2. How do you make working capital adjustments in transfer pricing?

    Transfer pricing refers to prices that a multinational company or group charges a second party operating in a different tax ... Read Full Answer >>
  3. Why do some oil refineries get tax exemptions?

    Oil refineries normally receive tax exemptions due to tax loopholes. The extracted fuel exemption, for example, one of the ... Read Full Answer >>
  4. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  5. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  6. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  2. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  3. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  4. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  5. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
  6. Discount Bond

    A bond that is issued for less than its par (or face) value, or a bond currently trading for less than its par value in the ...
Trading Center