Economic News Blog
Posted by: Steven Kline, Jr. 20. June 2013

Oil Price Contracting More Slowly

In real dollars, the price of oil averaged $94.80 in May 2013. This was just 1.2% lower than the real price of oil in May 2012. The month-over-month change in the price of oil has contracted 11 of the last 14 months. However, the rate of contraction in May was the slowest in any of those 11 months. Annually, the price of oil has contracted for seven months. But, May was the first month that the price of oil contracted at a slower rate.

Oil is a world commodity. So, there are a number of factors that affect its price. But, two significant factors are the relative strength of the dollar and real consumer spending. The dollar has been strengthening (although at a slower rate) against most currencies, which is pushing the dollar price of oil down. Real consumer spending has been growing at a constant rate, which is generally a sign of slower growth or faster contraction in oil prices. These trends would indicate an increase in the price of oil, all other things being equal. Therefore, the annual rate of change should continue to contract at a slower rate, which is a positive sign for oil, gas field, and mining machinery industry.

We use the price of oil to forecast production of oil, gas field, and mining machinery.


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