Over the recent years, the oil markets had to confront with a big challenge
coming from natural gas markets. The penetration of natural gas (NG) in energy mix
on a worldwide basis has provoked differentiation in oil pricing and has changed the
geopolitical balances. Nowadays, NG has prevailed in energy market. The
globalization of NG market in conjunction with NG economic and technical
characteristics reinforce its presence in energy markets. This study examines the
econometric relationship between West Texas Intermediate (WTI) crude oil price and
Henry Hub (HH) natural gas price in the US. The two fuels are highly correlated and
present a strong connection. Yet, the considerable changes in the US energy market
the last two decades and the tremendous growth of NG globally altered the field. The
last researches on topic captured that the oil and gas prices in the US move
independently from each other at least in the short-run. The main question is if the
divorce between gas and oil prices is permanent. This research performs well-known
econometric techniques in order to reveal the relationship between HH and WTI spot
prices since 1997 until now. The results showed that HH and WTI have not a long-run
cointegration equation and after an exogenous shock are not converged in an
equilibrium point. Prior to these evidence three exogenous economic variables are
checked in order to find their impact on the HH and WTI time series. The NG
residential consumption and the storage level in the US did not reveal any impact on
HH and WTI in contrast to Gross Domestic Product (GDP) that affects considerably
the two fuels’ prices. The causality testing showed that the two series cause each other
but only in the short-run under the absence of cointegration. Furthermore the volatility
of two time series do not have impact on the HH and WTI price determination.
Although the oil and gas in the US are strongly connected the first elements of a
separate price movement is already a fact.
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