On Friday the crude-to-gas ratio – simply the price of WTI crude oil divided by the price of Henry Hub natural gas - dropped to 18.5X ($69.46/bbl WTI divided by $3.75/MMbtu Henry Hub, right graph, red dashed oval). That is down from an astronomical 52X in April when gas was $1.61 and WTI was $83.85 (dashed green oval). Over the past ten years, the average ratio has been 22X (red line, left graph), so the relationship has basically returned to a more normal, historical range.
The crude-to-gas ratio is usually an indicator of trends in the frac spread – a surrogate for value added by natural gas processing (a.k.a., the frac spread), and steam cracker margins, since propane, butanes and natural gasoline prices tend to follow crude oil. This year, the frac spread has generally followed the crude-to-gas ratio lower, though the trend has not been nearly so steep.
