The Dynamic Linkages between Crude Oil and Natural Gas Markets

The time varying price spillovers between natural gas and crude oil markets for the period 1994 to 2014 are investigated. Contrary to earlier research, we show that in a large part of our sample the natural gas price leads the price of crude oil with price spillover effects lasting up to two weeks. This result is robust to a battery of tests including out-of-sample forecasting exercises. However, after 2006, we detect little price dependencies between these two energy commodities. This appears due to a conjunction of both demand and supply-side shocks arising from both natural and economic events, including Hurricane Katrina and the Global Financial Crisis, as well as the increased use of new technologies such as hydraulic fracking for the extraction of gas and oil. In effect the long term relation present in the early part of the sample has decoupled such that price determination of these two energy sources are now independent