by Bespoke Investment Group
With the price of natural gas remaining below $4 even as NYMEX crude is rising above $100 per barrel, the ratio of the price of oil to natural gas is currently right near record highs. Prior to the last five years, large spikes in this ratio were usually a sign that the price of oil had gotten ahead of itself. However, in recent years the historical relationship has become unhinged due to large discoveries of natural gas reserves in the United States. Given the fact that natural gas is harder to transport, there is less of a market for US supplies outside of the country.
The big question with the ever increasing ratio between oil and natural gas is why more hasn't been done to exploit the discrepancy. It's now been nearly three years to the day since oil first spiked above $100 per barrel. Since then we have heard incessant talk and catchphrases about how the US needed to become more energy independent and create alternative domestic sources of energy. What's been missing in all this talk, however, is meaningful action on the part of policy makers, corporations, or automakers to create alternative uses for all this excess fuel which is practically burning a hole in the nation's pocket.
As a result, we now find ourselves at the same place we were three years ago, with oil over $100 per barrel and more natural gas than we know what to do with. The only difference this time around is that we're now in the almost laughable position of being glued to the events in the Middle East and pinning our hopes on dictators like Moammar Gadhafi acting rationally and keeping our fingers crossed that other non-democratic regimes in the region can maintain their grip on power and keep the oil flowing.
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