When Will The Oil ETF Catch-Up To Rising Oil Prices?

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May 29, 2009 4:02pm NYSE:DIG

crudeHat tip to AbnormalReturns.com for highlighting a post by the Bespoke Investment Group about rising oil prices yet oil stocks lagging behind, the question is when will oil stocks catch-up to oil prices? If there’s one take away, its the ProShares Ultra Oil & Gas (ETF) (NYSE:DIG).

First up, the Bespoke Investment Group on Oil Continues to Outperform Oil Stocks:  Oil continues to rally on a daily basis and it is now up to $65/barrel after getting down to the $30s just a few months ago.  At the same time, oil stocks have lagged the commodity pretty significantly.   


Below is a historical chart of the ratio between oil stocks and oil.  When the line is rising, oil stocks are outperforming oil, and when the line is falling, oil is outperforming oil stocks.  When oil tanked at the end of 2008, the ratio spiked like it never had before.  Since the ratio peaked, however, it has fallen nearly as fast as it rose.  The current ratio is right near its average over the last 7 years, but it is “oversold” based on recent action.  At some point this ratio is bound to reverse as oil stocks begin to catch up with the commodity, the commodity begins to pulls back in, or both. 

 

Oilstocksoil

 

Full Story:  http://www.thestockmasters.com/DIG-Oil-Long-05292009


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