After spending most of 2023 in the stratosphere, the crude-to-gas ratio has reverted to the mean. 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 the ratio soared to average 30X, reaching an astronomical 40X in April. But since then, the crude-to-gas ratio has declined, dropping to only 22X on Friday, the lowest level in 365 days and closing in on the ten-year average ratio. Moral to the story, this ratio always mean-reverts. The only question is how long it takes.
