Investors should monitor the relationship between natural gas prices and crude oil (WTI) closely, as recent data suggests a tightening dynamic driven by liquefied natural gas (LNG) operations. According to on-chain funding metrics tracking historical chain total value locked, the volatility in natural gas markets is currently spiking, creating a ripple effect across the broader energy sector.
This volatility is significant because natural gas serves as a critical input for LNG production and export operations. These facilities are a primary demand driver for crude oil in the global market. When natural gas prices rise, the cost structure for these exporters shifts, incentivizing the diversion of crude oil into the energy sector—specifically for conversion into gasoline and diesel—rather than being available for export.
This diversion reduces the volume of crude available for export, which subsequently tightens WTI supply. As the supply of WTI contracts, the market dynamics shift, potentially supporting higher crude prices despite the initial volatility in natural gas.
Source: LlamaFunding historical chain total value locked data
What would change this read
However, this thesis relies on the assumption that rising gas prices directly curtail crude exports. If natural gas prices rise by more than 15% month-over-month but are accompanied by a simultaneous decrease in WTI inventories, it would indicate that export capacity is not the limiting factor, potentially weakening the argument for a supply squeeze.
