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Energy

Oil vs. Oil Stocks

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By Douglas A. McIntyre Updated Published
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From Ticker Sense

While the press has been busy speculating on what the next major private equity deal will be, oil stocks have been quietly staging a rally.  Even more impressive is the fact that oil the commodity has not been nearly as strong, as it is still over $14 off its Summer highs. In the chart below, we plotted the ratio of the S&P 500 oil and gas group to the price of oil. As the chart shows, the ratio currently stands at 7.25, which is near three year highs. This compares to a three year average ratio of 6.19.

In order for this ratio to get back to equilibrium (and no one says it has to), one or a combination of two things has to happen.  Either the stocks have to trade down or the commodity has to rally.  Based on current prices, oil would have to rally to $73 (17%) or the stocks would have to correct by 14%. Another possibility is that both assets continue to rise, but the commodity rises at a faster pace than the stocks.

Oil_vs_oil_stocks_1

November 30, 2006

http://tickersense.typepad.com/

Photo of Douglas A. McIntyre
About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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