IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

The Weak Tie Between Natural Gas and Oil Prices

Listed author(s):
  • David J. Ramberg
  • John E. Parsons
Registered author(s):

    Several recent studies establish that crude oil and natural gas prices are cointegrated, so that changes in the price of oil appear to translate into changes in the price of natural gas. Yet at times in the past, and very powerfully in the last two years, many voices have noted that the two prices series appear to have “decoupled”. We explore the apparent contradiction between these two views. Although we also find that the two series are cointegrated, recognition of the statistical fact of cointegration needs to be tempered with two additional points that we think have been insufficiently emphasized in the past literature. First, there is an enormous amount of unexplained volatility in natural gas prices at short horizons. Hence, any simple formulaic relationship between the price of oil and the price of natural gas will leave a large portion of the price of natural gas unexplained. Second, the cointegrating relationship does not appear to be stable through time. Natural gas prices may be tied to oil prices, but the relationship can shift dramatically over time. Therefore, although the two price series are cointegrated, the confidence intervals for both short and long time horizons are large.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 1017.

    in new window

    Date of creation: Nov 2010
    Handle: RePEc:mee:wpaper:1017
    Contact details of provider: Postal:
    77 Massachusetts Ave. (Building E40-279), Cambridge, MA 02139-4307

    Phone: (617) 253-3551
    Fax: (617) 253-9845
    Web page:

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:mee:wpaper:1017. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sharmila Ganguly)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.