Crude Oil Prices Leading Natural Gas Prices Lower

The recent price rally in crude oil was built on “hope” not actual data supporting an economic recovery.  While there isn’t a fundamental link between crude oil and natural gas prices, there is a psychological link, which means price movements in crude oil can sometimes impact price movements in natural gas.

“When crude oil prices rallied, natural gas prices didn’t necessarily move up, but the higher crude oil prices did create price support for natural gas,” says Valerie Wood, President of Energy Solutions, Inc.  “The crude oil price rally was kind of like a house of cards.  It was not supported by a rebound in demand, so the higher it went the more unstable it became.  Now, as crude oil prices have fallen, the psychological price support that it was providing to natural gas prices has also broken down.”

In addition to simply supply and demand, crude oil prices also respond to what is happening with the U.S. Dollar.  As the value of the U.S. Dollar strengthens against other currencies, investors shift away from investing in crude oil commodities.  Conversely, if the value of the U.S. Dollar weakens against other currencies, investors gravitate toward investing in crude oil commodities as a way to hedge against inflation.

“Crude oil prices rallied from $33.81 per barrel in mid-February to over $73 per barrel at the end of June.  It is actually possible that the crude oil price rally may have harmed an economic recovery because studies show that rapidly rising crude oil prices can slow growth in gross domestic product (GDP),” says Wood.  “For now, the downward momentum in crude oil is flowing over into natural gas, and that could be the factor that pressures natural gas to new lows.”

Additional details on how crude oil prices may impact natural gas prices are highlighted in the July 2009 edition of The Advisor, a multi-faceted publication that keeps natural gas buyers up-to-date with market-changing events.  Request your copy of the July 2009 edition by sending your request to  july-request@energysolutionsinc.com or call (608) 848-9589.

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About Energy Solutions, Inc.

Formed in 1996, Energy Solutions, Inc. is independently owned. With more than 25 years of experience in the natural gas industry, our team focuses on natural gas prices and in helping businesses improve their internal processes for the purchase of natural gas.