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0 Apr 26 2012 @ 9:58am by Matt Smith in Crude Oil, Economy, Global Energy, Natural Gas

Ratio / Horatio

Worlds collide this week as I have been distracted by the combo of CSI Miami and relative value … leaving us to delve into the world of ratios and Horatio. So, let’s take a look at some aspects currently present in Energyville™, kick-started by terminology used in the world of Horatio Caine.


This relates to the oil/gas ratio, because it has been moving faster than a bullet to break above 50, back when only 6 months ago it seemed incredulous it was breaking above 25. We have taken a look at this ratio a couple of times over the last few years (first here, then here) as it has rocketed higher, but surely it has now reached the stratosphere and is set to descend, as natural gas reaches at a decade-low, although crude seems somewhat cemented in triple digits. Whichever way you look at it, in the last few years this ratio has gone absolutely…ballistic:

Oil/Gas ratio, 1993 - present


Next up, strangulation. This is what high oil prices are currently doing to the European economy…cutting off its oxygen supply at a time when it is already weak. When I hear or read how high gasoline prices are not hurting consumers in the US, it is frustrating given that a one cent move accounts for $1.4 billion in consumer spending on an annualized basis. But when you look at the price of fuel, we have it easy here in the US. Oil hit $147 in the heady days of summer in 2008, while  Brent now rests at $119 ($104 on WTI). However, because of the relative weakness in the euro (in the summer of 2008, €1 got you $1.60, while now it only gets you $1.30), crude oil in euro terms is knocking on the door of record highs. This is why in France they are paying over $10 a gallon for gas, with little sign of respite:

Brent crude oil in euros, 2008 - present


Third, we take a look at mitochondria; the creation of energy that is needed for a cell to move. This is exemplified by the oil/gold ratio. While there have been some incredibly energetic moves for both crude and gold prices over the past few years, when measured in relation to each other, their ratio is back around its long-term mean since the 1970s. The spike in the last decade is indicative of the relative out-performance (and subsequent crash) of crude prices, while the return to the mean is indicative of the symbiotic appeal of these commodities in a time of loose monetary policy ( read: weak dollar / low interest rates) and in a recovering global economy; both have more than doubled since the belly of ‘the Great Recession’ in late 2008.


Finally,we wrap up with biometrics. Biometrics relate to the identification of humans by their characteristics or traits, so this final point references a habit that is more common than most across all readers….that of lunch. I leave you with the natgas/$5 footlong ratio™, as sometimes a sandwich is the only thing in life which makes sense. This ratio broke below 1 mid-last year and has headed lower ever since. Will this ratio ever see parity here again? Will Subway flinch first and raise their prices? Will natural gas prices rebound? All will be revealed in the passage of time, the blink of an eye, or in the scoffing of a scooby snack. On that note, I’m outta here. Thanks for playing!

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