Since the 2008 financial crisis, crude, metals and agricultural commodities markets are more highly correlated with each other and the S&P 500, so traders need to watch out. Good reason not to roll one’s eyes at natural gas, which lately some have dismissed as boring, an energy commodity markets veteran said.

Macquarie Securities Group’s Vikas Dwivedi, global oil and gas strategist, said despite the “lower for longer” view of the natural gas market that is held by many, there’s still volatility there, and opportunities.

“…[F]or markets in general, my belief is this super-high correlation [seen in crude, metals and ags] is still a sign of a sick global market,” Dwivedi told reporters during a briefing in Houston. “Until these correlations come back down, it’s still a giant risk-on, risk-off market that will do all kinds of strange things. What happens on a given day will be very tough to explain because it could have been triggered by a market far away.”

Before the financial crisis, correlations among these commodities and with the S&P 500 were “somewhat random and manageably low,” he said. “Since then, it’s been sky high, which means our oil traders have to be thinking about what’s going on in the Eurodollar market or the interest rate market or the S&P 500. It’s something guys have not needed to know about in the past, and it’s a source of real challenge…

“[B]ut look at [the correlation of] gas versus the S&P: low single digits, which means our gas business and our traders can focus on their market,” Dwivedi said. “They don’t have to worry about what the S&P is doing…Low correlation is good; gas has that. And high volatility is also good; gas has that.

Gas market volatility is strong despite low natural gas prices, and it’s marching back toward pre-2008 levels, Dwivedi said. Oil market volatility has been stabilizing in the mid-to high-20% area.

“As people talk about gas as kind of yesterday’s news because of ‘lower for longer,’ we disagree. We think there’s a lot of opportunity. During a lag period is not the time to bail out on a commodity that has a lot of potential…[W]hether it’s trading, risk management or assets, this is a big source of business opportunity.”

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