Take a look at this chart. This is chart of the crude oil / natural gas (NG) ratio. Whenever the ratio gets near 14-15, natural gas outperforms oil. Whenever the ratio gets below 7, oil outperforms natural gas.
We recently registered over 15 two weeks ago, at 15.41. This signals that natural gas will outperform oil on a relative and likely absolute basis.
Let's take a look at the other inflection points:
15.75 in Sept 06 to 6.78 in Nov 06: Oil ~0%, NG +105%: NG REL/ABS OUTPERFORM
6.78 in Nov 06 to 15.92 in Aug 08: Oil +146%, NG +54%: OIL REL/ABS OUTPERFORM
15.92 in Aug 08 to 6.01 in Dec 08: Oil -72%, NG -52%: NG REL OUTPERFORM
6.01 in Dec 08 to 15.41 in Apr 09: Oil +35%, NG -46%: OIL REL/ABS OUTPERFORM
15.41 in Apr 09: NG will outperform on a relative and likely absolute basis
The play? I like being straight long Natural Gas (UNG). If you want to be hedged, short crude (USO).
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