Oil's 'Endless Bid' Sets Up Nat Gas Shares

The "endless bid" in crude oil is setting up a fantastic opportunity in natural gas stocks.

The endless bid is what I've begun to call the inexorable and uncontrolled desire of investors to buy crude oil.

Through commodity index funds and particularly oil exchange-traded funds, investors have bought futures and bid up the price of oil to levels unsupported by the underlying supply and demand fundamentals.

Double-long ETFs, giving investors and traders a double hit of caffeine for their speculation dollar, have made the situation doubly worse. Crude oil seems to know only one way to travel -- up. Even when it takes a rest from its upswings and has a down day, you can feel the bid underneath the market, hungry for exposure, buying all the dips.

Top 5 Natural Gas Stocks

Natural gas so far hasn't excited investors to the same degree. This is because the access of natural gas to traders isn't nearly as universal. The indexes devote a much, much smaller percentage of their exposure to nat gas, and the ETFs like United States Natural Gas (UNG Quote) are puny by comparison to the oil ETFs like United States Oil (USO Quote). Less interest means far, far less of a bid, and far from an endless one.

Oil has rocketed to the $72 dollar range, while nat gas has languished near $4 an mMbtu (or 1,000 British thermal units). At these levels some other practical fundamentals will come into play. The ability for some utilities and other end-users of energy to switch easily back and forth from crude oil-based sources of energy to natural gas is called cogeneration. As oil moves up while natty stays cheap, the companies with that ability are looking to lock in relatively inexpensive long-term prices in natural gas and make the switch.