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What’s the Correlation between Oil and Natural Gas?

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Correlations in the trailing week

Between April 10 and April 17, 2018, the correlation between natural gas and US crude oil May futures was just 4.2%. In the seven calendar days to April 17, US crude oil and natural gas prices moved in the same direction in three instances out of the last five trading sessions based on the closing prices.

Between April 10 and April 17, 2018, the concerns surrounding geopolitical tensions in the Middle East have influenced oil prices. For natural gas prices over this time period, bullish inventory data and unseasonal cold weather, which we discussed in part three and part one, respectively, were the most important factors.

Between April 10 and April 17, 2018, US crude oil May futures and natural gas May futures rose 1.5% and 3.1%, respectively. The United States Oil ETF (USO), a US crude oil tracking ETF, and the ProShares Ultra Bloomberg Crude Oil ETF (UCO) rose 1.2% and 2.5% in the trailing week.

The United States Natural Gas ETF (UNG) and the ProShares Ultra Bloomberg Natural Gas ETF (BOIL), which follow natural gas prices, rose 3% and 5.2%, respectively, over this time period.

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One-month correlation

As of April 17, 2018, the trailing 30-day trading session’s correlation between natural gas active futures and US crude oil active futures was -17.8%. Between March 5 and April 17, 2018, natural gas active futures and US crude oil active futures rose 6.3% and 1.3%, respectively.

In February 2018, the correlation between natural gas and US crude oil in the trailing 30-day trading session mainly remained above 30%. In a few instances, the correlation was more than 40% in February.

For most of the periods in the trailing 12 months, the trailing 30-day correlation between natural gas and US crude oil was mainly positive. The sentiments across markets can interact with each other, not just across related commodities like crude oil and natural gas. Sentiments can interact across commodity, currency, and equity markets.

The negative correlation between the two energy commodities could present an opportunity to build some diversification in energy portfolios, assuming the negative correlation persists going forward.

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