Correlation for the trailing week
Between September 27–October 4, 2017, natural gas (UNG) (BOIL) active futures had a correlation of 40.7% with US crude oil futures. During this period, US crude oil (USO)(USL)(DBO) November futures fell 4.1%, and natural gas futures fell 4.0%.
In the trailing week, bearish weather forecasts were the major reason for the decline in natural gas prices. However, the fall in US crude oil prices could have followed a Reuters survey suggesting a rise in the OPEC output and the EIA data.
However, the high correlation between the two could indicate that sentiment from the crude oil market was driving sentiment across other energy markets such as natural gas.
The sentiment surrounding oil prices could be important for natural gas prices, which we discussed in Part 2 of this series. On a short-term basis, natural gas–weighted stocks such as Cabot Oil & Gas (COG) and Gulfport Energy (GPOR) also exhibit higher correlations with US crude oil compared to natural gas prices.
From May to July 2017, the 30-day rolling correlation between natural gas and US crude oil was positive and frequently exceeded 30%. Natural gas prices were in a downturn during this period because of a mild summer. US crude oil prices also struggled to stay above the $50 mark due to rising global supply concerns during this period.
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