When winter takes hold in the Northern Hemisphere, millions of households brace for high energy bills—with governments often doing what they can to prevent significant spikes in the price of 🅺heat for their populations.

For much of the time that there have been markets for both, oil and natural gas prices were correlated—they tended to go up and down together. Yet, often enough in recent years, when oil🦋 prices surge, natural gas prices remain surprisingly subdued. This leaves consumers and investors alike wondering: do oil and natural gas prices still rise and fall together?

Both commodities play crucial roles in powering our economies, from fueling transportation to heating homes and generating electricity. But there have been major technological changes in the past few decades, n꧑ot least that most homeowners can ill-afford when one fuel price spikes to replace their heating system to take the other.

Below, we'll examine the historical correlation between these two important commodities before turning to their prices in recent years and what they have to tell us about the relationship they might still have with each other.

Crude Oil and Natural Gas Historical Prices

Let's start with the historical price observations for both assets to set the context. Below are charts for the prices of Brent crude oil, which is a type of oil that provides a bencꦫhmark for world oil prices and natural gas, respectively.

The above charts show that oil and natural gas went primarily sideways or down for the first six months of 2017. However, between June of that year and May 2018, the price of crude oil trended higher, while natural gas prices stayed relatively flat. Both assets declined sharply in the fourth quarter of 2018, although the sell-off in crude oil started in early October, while natural g🦩as prices didn't start falling until December.

Prices began to diverge again in 2019, with oil prices recovering between January and April, while natural gas continued trending lower. Oil then proceeded to hit near-term highs over $130 per barrel in 2022 amid the Russian invasion of Ukraine, which caused geopolitical uncertainty and raised concerns about potential supply disruptions, as Russia remains a large oil producer. International sanctions on Russia, including restrictions on its oil exports, further tightened global oil supplies.

Russia was also a major natural gas supplier to Europe, and the conflict led to well-founded fears of disruptions in the EU's natural gas supplies. Before the war in Ukraine, Russia supplied around 40% of Europe's natural gas.

The war and subsequent sanctions on Russia led to severe supply disruptions and higher prices. However, while crude oil prices reflect global conditions, natural gas prices are more geographic and specific to seasons. While Europe's gas prices rose, the U.S., the world's largest natural gas producer, was relatively insulated from supply disruptions in Europe.

In addition, unlike oil, which can be easily transported globally via tankers, natural gas transportation is more difficult to ship—requiring sp🧜ecialized facilities for liquefaction, shipping, aཧnd re-gasification, limiting how quickly supply can respond to global demand shifts.

The data show that crude oil and natural gas prices have become less correlated over time, or that the prices have "decoupled.” The EIA provides historical data for a correlation study between crude oil and other commodities.

Correlation: Understanding the Numbers

In the simplest terms, the correlation between two asset prices is the extent to which price movement in one asset is similar to that of another. A 澳洲幸运5官方开奖结果体彩网:correlation coefficient between crude oil and natural g🌊as of 0.25 indicates that a change in the price of oil could account for 25% of the shift in natural gas pr𝄹ices (on average, for the period discussed).

Correlation is not a cause-and-effect indicator. Rather, it merely says how much they rise and fall together—not that the rise in one causes an increase or fall in the other. Indeed, it's often debated just how much these price changes may be coincidental, let alone causal or correlated.

Between 2020 and 2024, there's a positive correlation between natural gas and oil prices, but this reversed going into 2024, with natural gas moving lower relative to crude oil, as the price charts on this page show.

Economists ﷽and commodities traders also often debate whether and how much there are correlations between oil or natural gas prices and benchmarks like the S&P 500 (representing the stock m💯arket) and Treasuries (representing bonds).

We've followed the U.S. Energy Information Administration in using so-called heat maps as a visually easier way to discern relative correlations among crude oil prices and natural gas, as well as other benchmarks. Below is how you read the one above:

• Blue boxes: The bluer the box for each quarter, the stronger the positive correlation between the two commodities. As one commodity's value increases, the other's value will likely increase.
• Green boxes: Conversely, as the boxes become greener, this indicates a stronger negative correlation. Thus, a change in one commodity's value is inversely related to a change in the other.

Fundamentals Behind Changing Correlation

澳洲幸运5官方开奖结果体彩网:Hydraulic fracturing and horizontal drilling technologies have significantly increased shale production in the U.S., offering possible explanations for the delinking of crude oil and natural gas prices over the past decade. Because natural gas is a regional product, and oil is a global commodity, increased domestic production has driven down the commodity's price relative to oil's price.

The observations above suggest that oil has been the dominating factor in any observed relationship between the price of crude oil and natural gas (in other words, oil prices have a higher tendency to affect 澳洲幸运5官方开奖结果体彩网:natural gas prices rather than vice versa).

The Bottom Line

Based on the price patterns observed over the last decade, it is difficult to make the case that there's a correlation between crude oil and natural gas prices. The U.S. is one of the few countries that seem to have a balanced 澳洲幸运5官方开奖结果体彩网:infrastructure and established market for oil and natural gas. H𒉰owever, as the rest of the world markets rely more on oil, the true relationship between oil and gas remains inconclusive, with indications tending toward oil being the driving f𝓡actor.