We’ve been wondering lately whether natural gas futures were set to reclaim the title of “Widowmaker,” but in the meantime, we’ve seen a different widowmaker move taking place: the collapsing oil/natural gas spread. Bespoke Investment Group took a look at the spread (via Business Insider) as it began falling this summer, but the decline didn’t end there. We’ve updated the data in the graph below showing the spread coming back down to Crude prices being about 20 times more expensive than natural gas prices (which ignores that they are priced differently, one in dollars per barrel, one in dollars per thousand cubic feet, but stick with us):
Aside from that little bump in August, it’s been an impressive slide: the spread is down more than -58% as natural gas futures have risen nearly 102% and crude futures have fallen -16%. (Disclaimer: past performance is not necessarily indicative of future results.) But is this a sign of trouble, or just a return to more normal times for the spread between crude oil and natural gas?
For a little perspective, check out the spread over the past 20 years, where about 17 of those years (up until 2009) saw the ratio around 10 and always below 20. The slide back down seems to be more of a reversion to the mean off that huge spike through the middle of this year.
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