Oil + Nat Gas Price RATIO Relationship ?

While I'm skeptical, there are investors out there who strongly believe in a historical RATIO relationship between the price of CRUDE OIL and NATURAL GAS. If you're interested and have some time then I recommend you to check out the below link to an interesting study done on the topic by a couple of Rice University PH.D's in 2007:

http://www.rice.edu/energy/publications/docs/natgas/ng_relationship-nov07.pdf

Net of the net, the study concludes, "Importantly, we conclude that U.S. natural gas and crude oil prices remain linked in their long term movement...One implication of this finding is that, if international crude oil prices remain high, U.S. natural gas prices are unlikely to collapse substantially over the long term. According to our analysis, a $70 per barrel WTI average price is likely to promote a long run equilibrium natural gas price at the Henry Hub of around $9.40 per MMBtu. Furthermore, our analysis also shows that factors such as weather shocks and changes in storage can lead to substantial deviations from this long run price ratio. "

According to this study, the approximate price relationship between oil and natural gas should be about 7.5 : 1 and would look like this:

Oil : Natural Gas
$60 : $8.00
$70 : $9.33
$80 : $10.67
$90 : $12.00
$100 : $13.33
$110 : $14.67
$120 : $16.00

*For some perspective, crude oil is currently trading at $105.62/barrell while natural gas is at $9.80/BTU. If you are to accept the study's price ratio relationship of 7.5:1 as Gospel then you could argue that in today's market EITHER:

1.) CRUDE OIL is historically over-priced by $30/barrel (35% DOWNside risk!)

OR

2.) NATURAL GAS is historically under-priced by about $5/BTU (representing 50% UPside to the current price of natural gas!)

Data Courtesy: Rice University.