Oil Near 90 and Gas Near 3 Despite Shared Wells in Permian Basin

Oil and natural gas prices are diverging sharply, despite often coming from the same wells in the Permian Basin. As of late September, West Texas Intermediate (WTI) crude oil hovered around $90 per barrel, while Henry Hub natural gas futures settled at $3.03 per million British thermal units (Btu). This price gap is expected to persist, with the U.S. Energy Information Administration (EIA) forecasting Henry Hub to average $3.43 in 2026 and $3.28 in 2027, a significant drop from its earlier $4.59 projection for 2027.

The disconnect stems from factors like associated gas production, ample storage, and the expansion of liquefied natural gas (LNG) export facilities. Most Permian gas is a byproduct of oil drilling, and the gas-to-oil ratio has been rising. Nationally, dry gas production is near record highs, with EIA projecting 111.7 billion cubic feet per day in 2026 and 115.9 billion in 2027. However, past issues like negative prices at the Waha hub in West Texas highlight the challenges of pipeline capacity constraints.

Natural gas storage levels are currently comfortable, sitting 2.4% above the five-year average as of late September. EIA expects inventories to reach 3,969 billion cubic feet by the end of October, 5% above the five-year average. Despite growing LNG export demand, forecasted to average 17 billion cubic feet per day in 2026 and 19 billion in 2027, EIA has revised its price outlook downward, reflecting softer-than-expected market conditions.

The price divergence is testing existing contracts, particularly those tied to Henry Hub or regional hubs like Waha. Provisions around pricing, curtailment, and termination are under scrutiny, as producers and service companies navigate differing economic realities for oil and gas. EIA’s next outlook, due October 6, will provide further clarity on storage trends and 2027 price projections.