Oil and gas correlation - Essay Example

Oil and Gas correlation Oil and natural gas demand are basically expected to correlate due to their significant equal role in production of energy for industrialization and domestic consumption. In the early 1970s, economic reports indicates that there was a positive trend in their prices but this has since changed due to the emerging political and economic changes experienced across the world. One of the observed reasoned for the negative correlation between these two important resources can be attributed to socio, economic and political dynamics experienced across the world.

The economic recovery from 1980s in the US and the world at large was accompanied by rise in oil prices. However, the US domestic production of gas had just picked up and was at the boom phase rendering gas prices low. This means that the global prices of gas were significantly affected downwards as the oil demand plummeted hence the increased price disparity between the two commodities. It is also evident that from 1991, the import of oil by US had reduced but this still represented approximately 40% of the consumption by US against a paltry 5% of gas consumption by the US (Yépez-Garcia, Rigoberto , and Julie 86).

This is an evident case to support the observed negative correlation. It is also worth to note that the global oil prices are volatile in regard to world market trends, Middle East socio-economic issues and OPEC whims.The increasing technological advancement and campaign for more efficient machines is slowly increasing the use of gas. This means that gas fuel consumption trend will begin to gain influence in the value of dollar hence closing the demand gap it has with the oil. It is also possible that increased exhaustion of gas wells by the US will significantly push the gas prices up as there will be a plan to import more and reserve the domestic stock.

Work citedYépez-Garcia, Rigoberto A, and Julie Dana. Mitigating Vulnerability to High and Volatile Oil Prices: Power Sector Experience in Latin America and the Caribbean. Washington, D.C: World Bank, 2012. Print.