Trailing week correlation
On November 8–15, 2017, natural gas (UNG) (FCG) active futures had a correlation of 63.9% with US crude oil active futures. During this period, US crude oil (OIIL) (USL) (DBO) futures fell 2.6% and natural gas futures fell 3%.
The first two parts of this series focused on the factors that could be behind the recent weakness in natural gas. A buildup of ~1.9 MMbbls (million barrels) in crude oil inventories compared to an expected fall of 2.1 MMbbls for the week ending November 10, 2017, could have caused the downside in oil prices. Read Crude Oil: Is the Rally Over? to learn more.
On November 15, 2017, the 30-day rolling correlation between natural gas active futures and US crude oil futures was 14.9%. Between these two energy commodities, the 30-day rolling correlation was positive consistently between May and July 2017 and exceeded 30% on several occasions. From the correlation, we can draw a positive relationship between natural gas and crude oil prices.
Natural gas prices can depend on US crude oil prices. The energy sector as a whole can also depend on cues from oil prices. During a short-term period, natural gas–weighted stocks like Cabot Oil & Gas (COG), Chesapeake Energy (CHK), and WPX Energy (WPX) might be more correlated to oil prices than natural gas prices.
Visit Market Realist’s Energy and Power page for more updates on energy prices.