The ratio between crude oil and natural gas prices, which has been crazy high for most of 2023 has come back to reality and may be headed well below historical norms if the forward curves are any indication. This ratio is simply the price of WTI crude oil at Cushing divided by the price of Henry Hub natural gas. It is an indicator of the strength of crude prices relative to gas, with a high ratio usually supportive of high petrochemical steam cracker margins and gas processing frac spreads. A low ratio is not so good for either cracker margins or gas processing.
As shown in the graph below, since 2007 the ratio averaged 20X (red line), but this year, with crude oil prices boosted by geopolitical tensions and OPEC+ supply cuts along with gas prices in the dumper due to strong production and constraints on LNG exports, the ratio has averaged 28X, a level only exceeded in 2012.
