ETF Expert

When oil prices collapsed in the 2nd half of 2008, alternative energy standouts like "nat gas" went down the proverbial tubes. Substantially lower crude prices effectively meant (and mean) less need for a natural gas solution.

Yet crude oil has surged at a faster and more furious pace than world stock markets. Having fallen to $33 per barrel in mid-February, the price has now made its way back to $57. That's 72% in approximately 10 weeks!

Tracking problems for United States Oil (USO) notwithstanding, now up 40% off its lows, one might have surmised that natural gas would have gone along for the ride. Not so! The United States Natural Gas Fund (UNG) actually plummeted through March and April as well.

It would seem there's a point where crude oil doesn't worry folks too much… and that point may be $50 per barrel. Below $50 per barrel, a natural gas solution to energy prices doesn't seem to excite the masses.

However, with world governments working in lock-step to reflate the global economy, the price of most commodities have ascended once again. Add the trillions of U.S. dollars being spent to fix the U.S. financial crisis, and you have crude oil serving as a hedge against dollar devaluation as well.

So now that oil is creeping above $57 per barrel, well beyond the $50 mark, natural gas ETFs are the hottest movers over the last 5 days. iPath Natural Gas (GAZ) and United States Natural Gas Fund (UNG) have jumped 18% and 20% respectively… in just 5 trading sessions.

In truth, it may be premature to suggest that natural gas is going to start moving significantly higher with crude oil at $57. The last time that "nat gas" started to take off was when crude oil began moving dramatically higher from a $95 per barrel price point at the start of 2008.

However, the U.S. economy had been expanding and growing as crude oil marched from $65 in January 2006 to $95 2 years later. There may have been general discontent about higher fuel prices over the 2 years, but there wasn't a full-fledged recession nor a real estate catastrophe nor a global credit crisis just yet.

It follows that higher fuel prices will have a much bigger impact today than they did in the late years of our previous expansion. Moreover, the angst about prices climbing yet again will get both the "Drill Baby Drill" folks and the alt energy fans speaking out. Result? Natural gas would head much higher on speculation.

Again, however, my general thesis is based on rising oil prices. If oil prices stay range-bound between $50 and $60, I wouldn't expect natural gas to go crazy. On the flip side, if oil prices bust through $60 and begin heading for $70… the tipping point for natural gas will be earlier than it was in the last commodity bull.

If you'd like to learn more about ETF investing… then tune into "In the Money With Gary Gordon." You can listen to the show "live" or via podcast or on your iPod.

Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site.