Federal Reserve Economic Data: Your trusted data source since 1991

The FRED® Blog

Posts tagged with: "DCOILWTICO"

View this series on FRED

Friction in oil markets

The graph shows the price of a barrel of oil. Two types, to be exact: The blue line shows West Texas Intermediate (WTI) quality oil at delivery in Cushing, Oklahoma, a significant pipeline hub. The red line shows oil from the North Sea, referred to as Brent Crude. The two lines are typically very close to each other, with Brent being about $3 cheaper because of its slightly different characteristics and transportation costs. But things change for the years 2011 to 2014: WTI is much cheaper—up to $26 cheaper. What happened? Many factors may have contributed to this phenomenon, the most likely being the increased extraction of tar sands in Alberta, Canada, and a boom in oil extraction through fracking in the interior U.S. This glut overwhelmed the transport infrastructure and made it difficult to move all this oil to destination. Once more pipelines came online and the railroad transport toward the East Coast expanded, the price differential returned to normal, with relatively frictionless arbitrage between the various oil types and thus similar prices. This means that the different blends can be traded on the market as close substitutes while being easily accessible, and this makes their prices converge toward each other.

How this graph was created: Search for “crude oil price,” select the two series, and click on “Add to Graph.”

Suggested by Christian Zimmermann.

View on FRED, series used in this post: DCOILBRENTEU, DCOILWTICO

Does the market believe the change in oil prices is permanent?

Oil prices fell dramatically in the last half of 2014, from a high of $107.49 on June 13, 2014, to $54.14 on December 30, 2014, and continued to fall into early 2015. During the same period, a measure of 5-year inflation expectations declined in a similar way. The graph shows the unusual correlation between these two series from January 2014 to the present. The red line is the daily 5-year breakeven inflation rate from the beginning of 2014 to the present. (That breakeven inflation rate is computed from the difference between the 5-year Treasury inflation-protected security, or TIPS, and the 5-year Treasury and is a measure of market expectations of future inflation.) The blue line is the daily price of West Texas Intermediate crude oil.

Market expectations of the inflation rate 5 years out held steady for the most part from early 2013 to early 2014. On April 17, 2014, inflation expectations jumped up. After June 2014, oil prices fell precipitously, taking inflation expectations down with them. After January 27, 2015, oil prices stabilized and began to rise. Again, market inflation expectations rose.

While oil prices can pass through and affect other prices, the almost one-to-one movements in the two series seem to be unusual. Pass-through from oil to other prices is incomplete. If the price increase in oil was deemed to be temporary, the 5-year inflation rate would not move in unison with oil prices (little pass-through). In this case, it appears there’s at least some belief that the change in oil prices will persist, as there is substantial pass-through.

How this graph was created: Search for “crude oil prices,” select the series “Crude Oil Prices: West Texas Intermediate (WTI) – Cushing, Oklahoma,” and graph it on a daily frequency. Select the “Add Data Series” option: Search for “5-year breakeven inflation,” select the first series shown (“5-Year Breakeven Inflation Rate, Daily, Percent, NSA”), and add it as a new series. Select the “Edit Data Series 2” tab and change the y-axis position from left to right. Finally, set the start date to 2014-01-01.

Suggested by Michael Owyang and Hannah Shell.

View on FRED, series used in this post: DCOILWTICO, T5YIE

Keep the car running: retail gas sales and prices

Fuel has the reputation of being very price-inelastic: Consumption changes little even when the price changes. One way to illustrate this relationship is to compare the gasoline sales with prices. This is done in the graph above, and it is very clear these two measures move in sync. It is even more apparent if you look at their growth rates, shown below. Except for the recent recession, the growth rates are almost always very close to each other: The price swings only a little more widely, indicating that quantities respond very little to price changes.

How this graph was created: Search for one series, graph it, then add the other series. For the top graph, select the right axis for one series, as the scales are very different. To create the bottom graph, place both axes on the left and select “Percent Change From Year Ago” for both series.

Suggested by Christian Zimmermann.

View on FRED, series used in this post: DCOILWTICO, GASREGW, RSGASS

Subscribe to the FRED newsletter

Follow us

Back to Top