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Petroleum & Other Liquids

This Week in Petroleum

Release date: February 14, 2018  |  Next release date: February 22, 2018

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Economic indicators can inform non-OECD liquid fuels consumption forecasts

Increases in economic activity are typically associated with growth in petroleum and other liquids consumption. EIA lowered the 2018 oil-consumption-weighted Gross Domestic Product (GDP) growth forecast in countries outside the Organization for Economic Cooperation and Development (OECD) in the February 2018 Short-Term Energy Outlook (STEO) from the January STEO, but growth expectations for those countries remain higher than all 2017 STEO forecasts. In the February STEO, EIA expects global petroleum and other liquid fuels consumption to grow by 1.7 million barrels per day (b/d) in 2018, with 1.3 million b/d of that growth coming from non-OECD countries (Figure 1). Because oil consumption data can be lagged or incomplete, the use of frequently released economic indicators can be useful for confirming stronger or weaker periods of economic growth and inform oil consumption forecasts.

Figure 1. Liquid fuels consumption and GDP growth

Economic growth is a significant contributor to petroleum and other liquid fuels consumption growth, as it typically reflects increased commercial and personal transportation activities. Other important factors tend to be released with a greater lag or are difficult to estimate, including vehicle-miles traveled, energy efficiency and intensity, and population growth. Of the estimated 51.4 million b/d of non-OECD liquid fuels consumption in 2017, just under half was consumed in four countries—Brazil, China, India, and Russia. Although EIA does not directly use leading economic indicators as inputs to forecast non-OECD GDP and liquid fuels consumption growth, such indicators can inform EIA's forecasts of the growth rates in these variables when timely direct consumption data are not available.

The highest frequency economic data available are commodity prices. Any individual price series is not necessarily informative of non-OECD GDP growth, but analyzing a broad number of price trends can provide support to economic growth forecasts. For some non-OECD countries, manufacturing is a large sector of their economy. In addition, natural resource extraction and agriculture also tend to be large sectors of non-OECD economies. Commodity prices can therefore play a significant role in some non-OECD economies, particularly if they are dependent on only a few commodities for exports. Even though any individual commodity price can be significantly affected by supply-side factors—such as weather or policy directives—comparing a broad basket of commodity price trends can be useful for identifying periods of cyclical increases or decreases in economic growth, which is suggestive of demand for natural resources.

Analyzing an equally-weighted basket of 38 commodity futures prices, including various precious and industrial metals, agricultural commodities, and energy commodities, shows that commodity prices tend to fall when non-OECD GDP growth is about 4% or below (Figure 2). When one-third or fewer commodities are trading above their one-year moving average price, it typically suggests low non-OECD economic growth, such as during the 1997–98 Asian financial crisis or the 2008–09 Great Recession. Similarly, when the number of commodities setting new one-year price lows is at least five more than the number of commodities setting new one-year price highs is also suggestive of periods of low economic growth in non-OECD countries. Currently, about two-thirds of commodities are trading above their respective one-year moving averages, and nine commodities set one-year price highs in late January 2018, the largest number since 2011.

Price trends for 38 commodities and non-OECD GDP

The Manufacturing Purchasing Managers' Index (PMI) is another set of economic indicators that reflect surveys of purchasing managers in manufacturing businesses on expectations of output, new orders, employment, and other measures. A PMI index level above 50 indicates expansion in manufacturing activity, whereas an index below 50 indicates contraction. Among 10 non-OECD countries' manufacturing PMI surveys in January 2018, 9 had readings greater than 50, with a median of 51.7 (Figure 3). Expansion of business and manufacturing activity could indicate higher consumption of crude oil and petroleum products, particularly distillate fuel.

Figure 3. Manufacturing Purchasing Managers' Index for 10 non-OECD countries

The OECD publishes a set of composite leading indicators (CLI) for all OECD countries and for six non-OECD countries. Each CLI is composed of many data series unique to each respective country, with an index of 100 representing that country's long-term potential economic output. A CLI rising above 100 signifies current economic activity is stronger than the country's long-term potential economic output. These indicators are constructed with the intention that peaks and troughs in the series signal a possible change in the country's business cycle six to nine months in advance. Five of the six non-OECD country CLIs are above 100 for December 2017, the latest month for which data are available, with Brazil's CLI reaching an all-time high of 103.8 (Figure 4). Periods when the CLI are declining below 100 for most of these countries tend to occur when non-OECD GDP growth is lower than 4% and could indicate slower-than-expected growth in liquid fuels consumption.

Composite leading indicators

The benefits of using leading economic indicators and prices include their frequent collection and transparency. Because they can be used to identify economic trends in real time, these indicators are useful even as petroleum consumption data become more timely and complete.

U.S. average regular gasoline and diesel prices decrease

The U.S. average regular gasoline retail price dropped 3 cents from the previous week to $2.61 per gallon on February 12, 2018, up 30 cents from the same time last year. Midwest prices decreased over seven cents to $2.46 per gallon, Gulf Coast prices decreased nearly four cents to $2.33 per gallon, and East Coast and West Coast prices each decreased less than one cent to $2.61 per gallon and $3.14 per gallon, respectively. Rocky Mountain prices increased over one cent to $2.51 per gallon.

The U.S. average diesel fuel price dropped over 2 cents to $3.06 per gallon on February 12, 2018, 50 cents higher than a year ago. West Coast prices fell nearly three cents to $3.43 per gallon, Midwest, Gulf Coast, and East Coast prices each fell over two cents to $3.02 per gallon, $2.85 per gallon, and $3.11 per gallon, respectively, and Rocky Mountain prices fell one cent to $2.97 per gallon.

Propane/propylene inventories decline

U.S. propane/propylene stocks decreased by 3.3 million barrels last week to 45.6 million barrels as of February 9, 2018, 9.0 million barrels (16.5%) lower than the five-year average inventory level for this same time of year. Gulf Coast, Midwest, East Coast, and Rocky Mountain/West Coast inventories decreased by 1.3 million barrels, 1.0 million barrels, 0.9 million barrels, and 0.1 million barrels, respectively. Propylene non-fuel-use inventories represented 7.0% of total propane/propylene inventories.

Residential and wholesale heating fuel prices decrease

As of February 12, 2018, residential heating oil prices averaged $3.13 per gallon, nearly 7 cents per gallon lower than last week but 49 cents per gallon higher than last year's price at this time. The average wholesale heating oil price for this week averaged almost $1.99 per gallon, 20 cents per gallon lower than last week but 24 cents per gallon higher than a year ago.

Residential propane prices averaged nearly $2.58 per gallon, 1 cent lower than last week but 12 cents per gallon higher than a year ago. Wholesale propane prices averaged almost $1.07 per gallon, 7 cents per gallon less than last week but 20 cents per gallon higher than last year's price.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: consumption/demand , financial markets , international , non-OECD , oil/petroleum , prices , STEO (Short-Term Energy Outlook) , weekly

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  02/12/18 Week Year
Gasoline 2.607 -0.030 0.300
Diesel 3.063 -0.023 0.498
Heating Oil 3.133 -0.068 0.491
Propane 2.575 -0.012 0.124

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  02/09/18 Week Year
Crude oil 59.20 -6.25 5.34
Gasoline 1.700 -0.172 0.110
Heating oil 1.855 -0.199 0.189
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  02/09/18 Week Year
Crude oil 422.1 1.8 -96.0
Gasoline 249.1 3.6 -10.0
Distillate 141.4 -0.5 -28.7
Propane 45.641 -3.296 -7.499