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How’s Natural Gas Correlated to Crude Oil?

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Natural gas and crude oil

In the past year, during the crude oil downturn, the correlation rose between natural gas and crude oil. During August 2015 and December 2015, the 30-day correlation rose significantly. During August 2015, asset prices fell due to fears of a Chinese (FXI) economic meltdown and the devaluation of the yuan. So, the natural gas (UNG)(UGAZ) and crude oil (USO)(UWTI) correlation rose significantly. During December 2015, natural gas and crude oil fell due to inventory-related news for both commodities. As a result, the correlation spiked again.

 

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The correlation between natural gas and crude oil rose again since the beginning April 2016. In the past month, crude oil also rose due to fewer gains in inventories compared to the forecast. Similarly, colder weather forecasts on April 19 and the U.S. Energy Information Administration’s estimates of a fall in natural gas production have been driving natural gas prices higher.

Natural gas–weighted stock

Stocks with a production mix of at least 80% in natural gas (UNG)(UGAZ) had a stronger correlation to crude oil than to natural gas in the last three months such as EXCO Resources (XCO), Ultra Petroleum (UPL), and Antero Resources (AR). Read Natural Gas–Weighted Stocks: Why Are They Diverging? to learn more about the correlation of natural gas–weighted stock with crude oil.

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