February Oil Price Drops 8.6% Compared to Last Year

In real dollars, the price of oil averaged $95.32 in February 2013. This was 8.6% lower than the price of oil in February 2012. The month-over-month price of oil has contracted eight of the last 11 months. Annually, the price of oil has contracted faster each of the last four months. That trend will likely continue for a couple of months.

Because the U.S. still consumes a significant portion of the world’s oil, real consumer spending in the U.S. is a relatively good leading indicator of the price of oil. This is because producing and transporting all of those goods requires a lot of oil. But, month-over-month growth in consumer spending has been 2.0% or higher the last three months. While this is below the historical average, it is a slightly higher rate of growth than what was seen in 2011. We may be on the verge of accelerating growth in consumer spending, which would push the price of oil higher. 

Of course, the price of oil is a very good leading indicator for the production of oil, gas field and mining machinery.