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. Accident Year Experience

    Premiums earned and losses incurred during a specific period ...
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. Investing Basics

    What are Financial Statements?

    Financial statements are a picture of a company’s financial health for a given period of time at a given point in time. The statements provide a collection of data about a company’s financial ...
  5. Stock Analysis

    What Would Be Of BreitBurn Energy This Summer?

    This Spring, BreitBurn Energy Partners' banks will take a closer look at its credit facility and redetermine its borrowing base.
  6. Stock Analysis

    Why Investors Bailed On Halcon's Stocks

    The unexpected plunge in the oil price over the past few months sent Halcon Resources' stocks down nearly 75%.
  7. Stock Analysis

    How Is SandRidge Energy Really Looking To Grow?

    SandRidge Energy is following the playbook of almost every other oil and gas company in the country: cutting spending and delivering meager growth.
  8. Stock Analysis

    Cheaper Solar Power Gets Some Major Backers

    While solar hasn’t lived up its potential, the times are changing. New investment has surged. For investors, this could be the time to buy solar stocks.
  9. Stock Analysis

    How Will Chesapeake Energy Create Value?

    A few years ago, Chesapeake Energy's bloated balance sheet forced it to sell off assets at fire-sale prices and fund its aggressive capital spending plan.
  10. Stock Analysis

    Why Is SolarCity A Growing Stock?

    SolarCity's stock may be down about 40% in the last 12 months, but its underlying business is growing rapidly.

You May Also Like

Hot Definitions
  1. Fixed-Charge Coverage Ratio

    A ratio that indicates a firm's ability to satisfy fixed financing expenses, such as interest and leases. It is calculated ...
  2. Efficiency Ratio

    Ratios that are typically used to analyze how well a company uses its assets and liabilities internally. Efficiency Ratios ...
  3. Fixed Cost

    A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses ...
  4. Subsidy

    A benefit given by the government to groups or individuals usually in the form of a cash payment or tax reduction. The subsidy ...
  5. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business ...
  6. Technical Skills

    1. The knowledge and abilities needed to accomplish mathematical, engineering, scientific or computer-related duties, as ...
Trading Center