Mcx natural gas trading strategy

From June to the end of the year, crude oil traded sideways, whereas natural gas prices moved marginally higher. From the above observations, there seems to be little correlation between crude oil and natural gas prices over the broader three-year period reviewed.

Commodity trading strategies

However, a look at other data sources may offer a different view. The U. Energy Information Administration EIA provides historical data for a correlation study between crude oil and other commodities. The following table is constructed based on the quarterly data and shows the correlation between natural gas and Brent crude oil price changes. In the simplest terms, the correlation between two asset prices is the extent to which price movement in one asset shows similarity with that of price movement in the other asset.

A correlation coefficient between crude oil and natural gas of 0. Correlation is not a cause-and-effect indicator; rather, it merely indicates how much similarity rise and fall together exists between the price patterns of the two assets. We can observe the following information from the above table:. From and , there was an evident positive correlation between the two commodities—ranging from 0. The positive relationship peaked in the second quarter Q2 of and the Q2 and Q3 of while showing a relatively strong connection throughout each quarter of However, the data shows very little correlation between and , apart from irregular quarters.

Revolutionary hydraulic fracturing and horizontal drilling technologies that have significantly increased shale production in the United States provides a possible explanation 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. However, stronger periods of correlation could arise again because oil and natural gas are close substitutes for each other.

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End consumers can now switch between fuels. For instance, a business could use a power plant that can switch between oil and natural gas, or a consumer could use a dual-powered vehicle. If the price of one energy source rises significantly, consumers have the choice to use another.

This increases the demand for the second energy source, and its price then rises. 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 natural gas prices rather than vice versa. Based on the price patterns observed over the last decade, it is difficult to make definite conclusions about the correlation between crude oil and natural gas prices. The United States is one of the very few countries that seem to have a balanced infrastructure and established market for both oil and natural gas.

NATURAL GAS News

However, as the rest of the world markets have a greater reliance on oil, the true relationship between oil and gas remains inconclusive, with indications tending towards oil being the driving factor. Energy Information Administration.

Accessed Jan. The EIA reported that Crude oil and gasoline prices are higher Yesterday we gave the markets a Neutral or Mixed bias and the markets traded Mixed. Will this change today?

Read on to learn more. May nat-gas prices on Wednesday settled moderately lower on the outlook for above-normal Your browser of choice has not been tested for use with Barchart. If you have issues, please download one of the browsers listed here.

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