Natural Gas and Oil Spread: Opportunity or a Pain Trade?

Natural Gas and Oil Spread: Opportunity or a Pain Trade?

October 5, 2012 Trend Following, Research Insights
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(Last Updated On: March 14, 2017)
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The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

The chart above (with my annotations on the far right) is from a research piece by The Carlyle Group.

From 1997 to 2005 oil and natural gas sat roughly at parity on an energy-adjusted basis. The spread widened thereafter, but came back in line when oil crashed.

Now we face the most epic spread in history.

Question: Is this one of the greatest opportunities in history? Or is this going to go down as the biggest “pain trade” of all time?

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http://www.businessinsider.com/nomura-on-shorting-japanese-government-bonds-2012-10


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About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.