A monthly recap of Natural gas prices and Crude oil prices for November 2010

November had many news items affecting major commodities,  including Ireland’s bailout, the firing of North Korea and more come into mind (for further reading on these subjects check out at links at the end of this post). In this short post, I would like to mainly refer to the changes of crude oil price and natural gas prices and their correlation to major exchange rates. In particular, I will just point out three items worth mentioning:

  1. In the following table I present a summary of the correlation of daily percent changes among natural gas spot price and crude oil price (spot prices) to major currencies, for the month of November:

Correlation among natural gas  price, crude oil price & Currencies November 2010

The table shows that there is a strong positive correlation between the AUD /USD and crude oil prices, i.e. on roughly 46% of the time, when the AUD /USD was appreciated, the crude oil prices rose and visa versa. Or in other words, when the AUD (Australian Dollar) strengthen against the US dollar, on average, in 46% of the business days during November the WTI crude oil price rose. There was also a strong negative correlation between USD/CAD and petroleum price of -0.64.

For natural gas prices, the most correlated currency to it, form the currencies I have tested, is the USD/YEN with a 0.31 correlation. This means that when the USD/YEN increased, Natural gas prices also increased on 31% of time.

You can also see that there is very little correlation between these commodities prices and EURO/USD.

2. In the following chart of crude oil prices (WTI spot) vs. natural gas prices (Henry Hub) , it shows that both prices were normalized to the beginning of the month 100= =1/11. The chart clearly shows, that from the middle of the month, there was parting of these prices, as natural gas spot price rose substantially more then crude oil price.

Chart crude oil prices and natural gas price chart November 2010

3. In the final two charts, I present a chart of crude oil price compare to major currencies, such as EURO/USD and AUD/USD. The second chart is the same for natural gas prices. The charts show the following:

3.1.    Crude oil price doesn’t display a particular trend;

3.2.    Natural gas spot price show an upward trend;

3.3.     The exchange rates EURO/USD and AUD/USD show a downward trend, while USD/CAD shows a small upward trend, and all of them show that USD has strength compare to these major currencies at the end of the month.

Chart Natural gas prices and Currencies - November 2010

Chart crude oil prices and Currencies - November 2010

What does it all mean?

Again, it’s hard to draw a causality relationship based solely on these charts and table; however, we can speculate that at the beginning of the month AUD/USD and Crude oil prices had a positive correlation (i.e. as the USD devalued crude oil price rose), while at the end of the month the relation shifted and as the USD strengthen (AUD/USD dropped), crude oil prices rose. The same goes for USD /CAD and its strong correlation with Crude oil prices.

In regards to Natural gas prices, the same analysis can’t be applicable, as it rose very sharply for most of the month and a lot more then Crude oil prices. We can only suggest that the USD strengthening compare to the Yen, could be related in some part to Natural gas prices.

I will further follow these relations to see if we can draw in future posts a more concrete conclusion on the correlations between these commodities and major exchange rates.

For further reading (in this site):