After spending most of 2023 in the stratosphere, the crude-to-gas ratio is finally coming down to earth. This ratio is simply the price of WTI crude oil 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.
Over the past ten years, the average ratio has been 21X, but in 2023 YTD the ratio soared to an average of 30X, reaching an astronomical 40X in April. But since then, the crude-to-gas ratio has declined, dropping to only 25X on Friday, the lowest level since late January. This can be interpreted as a market more in balance with long-term trends and relationships.
