Price Correlations Between Oil and Natural Gas 2000-2025
At the start of the 20th century, oil and natural gas moved in tandem. Their co-production, overlapping end uses and oil-indexed gas contracts created strong price linkages. However, between 2000-2025, structural changes in supply, infrastructure and market design steadily eroded the relationship. Today, oil and gas trade on separate fundamentals, and the historical correlation that once defined the energy markets has largely broken down.
The Linked Past 2000-2005
In the early 2000s, natural gas was frequently a byproduct of oil extraction. Both fuels were used across power generation, heating and industrial processes, creating shared demand drivers. At the time, gas markets in Europe and Asia were underdeveloped, and many gas contracts were indexed to oil prices. The system provided price stability in the absence of gas-specific benchmarks but also tethered gas prices to oil regardless of supply-demand fundamentals.
Data from this period reflects the relationship. Between 2000 to 2005, the correlation coefficient between U.S. crude oil (WTI) and natural gas (Henry Hub) averaged around +0.45, indicating a moderately positive relationship rising as high as +0.69 in 2005, off the back of hurricane season (Investopedia). These figures were driven by overlapping demand patterns and the ability of some industrial consumers to switch fuels depending on relative prices.
The Divergence Of Correlations
The onset of the U.S shale boom marked the beginning of the structural decoupling. Advances in hydraulic fracturing and horizontal drilling unlocked vast reserves of shale gas. In 2008, natural gas spiked to record highs, the Henry Hub rose to over $13MMBtu in mid-2008, alongside oil. But prices collapsed shortly after, even as oil rebounded from the global financial crisis. By 2010, crude had rebounded to over $80bbl, while gas remained below $5MMbtu.
Unlike oil, which is easily exported and traded globally, natural gas remained landlocked within North America. Limited LNG export capacity kept gas in North America, driving prices down. Meanwhile, oil remained subject to global factors like OPEC production decisions, geopolitical tensions and international export routes. The US gas market became increasingly local, driven by weather, storage, and pipeline dynamics, forces which had little impact on oil.
The Development of the Natural Gas Market as an Independent Commodity.
The flood of cheap U.S LNG began impacting global gas prices by the early 2010s. In Europe, gas hubs like TTF and NBP gained traction as alternatives to oil-based price linking. During the 2009 recession, oil-indexed contracts remained elevated. Many buyers renegotiated terms, weakening the dominance of oil-based pricing.
By the mid-2010s, this eroded the rationale for oil indexation. According to the International Gas Union, hub indexation in LNG trade rose sharply through the decade. Flexible LNG exports from the US, Australia and Qatar allowed markets to respond to gas-specific fundamentals rather than oil benchmarks.
In parallel, regulatory reform in Europe accelerated the transition. The EU’s Third Energy Package, implemented in 2009, promoted market liberalisation and transparent pricing. Oil-indexed contracts began to decline, and European buyers gained access to competitive gas mechanisms.
Asia lagged but began to follow a similar path. Historically reliant on long-term, oil-linked LNG deals, countries like Japan, Korea and China began adopting hybrid contracts indexed to Henry Hub or spot LNG prices. Although oil linkage remains strong in Asia, the trend toward decoupling is evident.
Shocks that Reinforced the Separation
Throughout the 2010s, a series of market shocks underscored the growing independence of oil and gas prices. In 2011, civil conflict in Libya removed a significant volume of oil from the global supply, pushing prices sharply higher; natural gas was unaffected. In 2014, a polar vortex in North America caused regional gas prices to spike due to surging heating demand and infrastructure strain, while oil remained stable.
Such events underscore that Oil and gas are influenced by different forces: oil by global geopolitics and coordinated supply, and gas by regional weather patterns, infrastructure constraints and seasonal demand.
Current Market Dynamics 2020s
In the 2020s, oil and gas are now firmly decoupled. Oil remains globally priced, with narrow spreads between benchmarks like Brent and WTI. Gas prices, by contrast, vary widely. In 2022, Henry Hub averaged $3-6MMbtu range while Europe's TTF and Asia’s JKM spiked into the $30-70/ MMBtu range due to the Russia-Ukraine war and tight global supply.
Regional differences in infrastructure also drive disconnect. Gas prices are shaped by pipeline bottlenecks, LNG terminal capacity and storage availability. In contrast, oil’s transport flexibility allows for smoother global arbitrage. In 2022, a fire at Freeports LNG terminal lowered prices as it couldn’t be exported, even as global gas prices remained tight.
Weather sensitivity further distinguishes the two. Gas demand is highly seasonal, responding sharply to temperature extremes. During 2021, the Texas freeze, US gas prices soared over $100/MMbtu in some regions, and oil prices barely moved.
Between 2000 and 2025, the oil and gas market underwent structural separation. Technological advances, regulatory reform, infrastructure expansion and globalisation of LNG allowed gas to emerge as a commodity governed by its fundamentals. The assumption that oil and gas will move in tandem no longer holds.