Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Natural Gas Is Surging While Oil Craters in 2026
Transcript
- Lucas: Crude oil has had a rough week — down about 7 percent in five days. Meanwhile, natural gas is up nearly 14 percent over the same stretch. That's not a typo. Luna: Yeah, I was looking at that this morning. CL — crude futures — sitting around 87 bucks, while gas is at 3.29. That's a massive divergence. Lucas: Normally, natural gas and crude do move together to some degree. They're both hydrocarbons, both tied to the broader energy complex. But right now, their stories couldn't be more different. Luna: And if today's episode helps make sense of that split, maybe it's worth a cup of coffee? The show stays ad-free thanks to listeners who chip in at buy me a coffee dot com slash fexingo. Low-key, no pressure — just a way to keep this going. Lucas: Exactly. We get to do this because people find value in it. So if today clicks, that's the link. Now — let's dig into why gas is ripping higher while oil is getting crushed. Lucas: Start with natural gas. The big driver here is storage. Heading into summer, inventories in the US are about 15 percent below the five-year average. That's a real deficit. Luna: And that deficit isn't just a statistical curiosity. It means the market is pricing in that any extra demand — say, a heat wave — will strain supply. Lucas: Right. Plus, liquefied natural gas exports are running at record levels. We're shipping more gas to Europe and Asia than ever before. So even if domestic production holds steady, what's left for the US market is tighter. Luna: And the weather forecasts this week for June look hot. That's the kind of catalyst that can light a fire under gas prices when the storage cushion is thin. Lucas: Meanwhile, oil is dealing with a completely different set of pressures. The big headline yesterday was the Iran deal talks ending without a final determination. That's usually the kind of news that would boost crude — geopolitical risk premium. Luna: But oil went down anyway. So clearly the market is more worried about demand than supply disruptions right now. Lucas: Exactly. And the demand picture is getting murky. The latest CPI data showed inflation still sticky at 3.3 percent year-over-year. That keeps pressure on central banks to hold rates higher for longer, which slows economic activity and hits oil demand. Luna: Plus, there's the ongoing concern about China's recovery. Their manufacturing PMIs have been lackluster, and they're the world's largest oil importer. Lucas: And on the supply side, OPEC has been signaling they might start unwinding some production cuts later this year. That's been hanging over the market for weeks. Luna: So with oil, you've got demand worries, potential extra supply, and even a failed Iran deal can't lift prices. That's pretty bearish. Lucas: Let me throw a number at you. The S&P 500's energy sector — ticker XLE — is down over 5 percent this week. Exxon is off 6 percent. Chevron down nearly 5. So investors are voting with their feet. Luna: Meanwhile, natural gas stocks like EQT and Range Resources have been outperforming. That divergence in the equities mirrors the commodity move. Lucas: One thing that's interesting is the breakdown in the historical correlation. Over the past decade, the 30-day correlation between crude and gas has averaged around 0.3 to 0.4. Right now, it's negative. Luna: Negative correlation? So they're moving in opposite directions more often than not recently. That's unusual. Lucas: It is. And it tells you that the fundamental drivers for each market are completely disconnected at the moment. Gas is driven by storage and weather. Oil by macro demand and OPEC politics. Luna: So for listeners trying to trade or hedge, you can't just treat energy as one block anymore. The two big benchmarks are telling very different stories. Lucas: Right. And that might persist for a while. Gas has room to run if summer heat materializes. Oil could stay under pressure until we get clearer signs of demand recovery or a supply shock. Luna: Let's talk about the other commodities briefly. Gold is at 45-hundred, up a bit this week. Silver is flat. Copper flat. So it's really the energy complex that's the outlier. Lucas: Gold holding up makes sense if you think about the inflation backdrop. Core PCE ticked up to 2.8 percent in April. That's above the Fed's target, so real rates are still negative, which is supportive for gold. Luna: But oil is the one that's really getting punished. And it's not just crude — gasoline and diesel have been sliding too. Lucas: Yeah, the products are following crude lower. The refining margin is still decent, but the whole complex is under pressure from the demand side. Luna: One more thing on natural gas — we saw some production curtailments earlier this year when prices were in the twos. Now that prices are above 3, producers are bringing those wells back online. But it takes time. Lucas: Exactly. So the supply response is lagging. And with storage already low, that sets up a potentially volatile summer. If we get a few weeks of above-normal temperatures, gas could test 4 dollars. Luna: What about the oil side — any chance of a bounce? Some analysts are pointing to the fact that speculative positioning is extremely short. That could fuel a short-covering rally. Lucas: Could happen. But the trend is your friend until the bend. Right now, the trend is clearly lower. And with the Iran uncertainty unresolved, the market seems to think any risk premium is overblown. Luna: So the bottom line for listeners: if you're watching energy, you've got two separate plays. Natural gas is a weather and storage story. Oil is a macro and opec story. Don't conflate them. Lucas: And that's the key takeaway. The old habit of thinking 'energy is energy' doesn't work in 2026. The divergence this week is a perfect example. Luna: Alright, next time we'll look at what's happening with agricultural commodities — wheat and corn are both down this week, which is interesting given the supply chain headlines. Lucas: Sounds good. Thanks for listening, and if you found this useful, you know where to find us. Talk soon.