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The Relationship of Natural Gas to Oil Prices

We investigate the relationship between the prices of natural gas and crude oil, and the factors that cause short run departures from the long run equilibrium price relationship. We find evidence that the link between natural gas and crude oil prices is indirect, acting through competition at the margin between natural gas and residual fuel oil. We also find that technology is critical to the long run relationship between fuel prices, and short run departures from long run equilibrium are influenced by product inventories, weather, other seasonal factors and supply shocks such as hurricanes.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Energy Data, Modeling, and Policy Analysis; Natural Gas – Markets and Prices

JEL Codes:
L13 - Oligopoly and Other Imperfect Markets
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Natural gas, oil prices, ECM price relationship, US

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-No3-3

Published in Volume 29, Number 3 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.