Gas index natural price spot

The Producer Price Index (PPI) for Finished Goods declined 1.6 percent in 2001, the largest calendar year decrease since a 2.3-percent drop in 1986. This index rose 3.6 percent in 2000, and 2.9 percent in 1999. Finished goods are commodities that are ready for sale to the final-demand user, either an individual consumer or a business firm. The majority of the 2001 decline in finished goods prices can be traced to a 17.1-percent drop in finished energy prices. Excluding energy, the index for finished goods advanced 1.2 percent in 2001. Following a 1.7-percent gain in the prior year, the index for finished consumer foods rose 1.8 percent in 2001. Prices for finished goods less foods and energy--a category that includes both consumer goods and capital equipment--increased 0.9 percent in 2001, following a 1.3-percent advance throughout the previous 12 months.

Prices for commodities at the overall crude and intermediate stages of processing also experienced declines for the 2001 calendar year. The PPI for intermediate materials, supplies, and components fell 4 percent in 2001, after posting a 4.1-percent gain in 2000. Intermediate goods in the PPI reflect material inputs to the manufacturing process, as well as various supplies consumed in the production process. Prices for crude materials for furthering processing dropped 32.5 percent, following a 35.5-percent jump in the prior calendar year. Crude goods are unprocessed goods that are primarily outputs from mining industries and agricultural production.

Throughout 2001, energy prices turned down at both the crude and intermediate stages of processing. The index for intermediate foods and feeds rose at a much slower rate in 2001 than it did in 2000. Prices for crude foodstuffs and feedstuffs turned down, after falling a year earlier. Excluding foods and energy, the indexes for intermediate goods and crude materials posted declines. (See table 1.)

Energy goods

Falling prices for both natural gas and petroleum-based commodities pushed energy prices down in 2001 at all three stages of processing. The crude energy index dropped 52.9 percent, compared with an 85.6-percent jump in 2000. This decrease was primarily the result of declining prices for natural gas and crude petroleum. Prices for energy goods at the intermediate stage of processing fell 16.9 percent, subsequent to a 19-percent gain a year earlier. The indexes for jet fuels, diesel fuel, and industrial and commercial natural gas registered declines in 2001, after rising in the prior year. At the final stage of processing, the index for finished energy goods decreased 17.1 percent, following a 16.6-percent advance in 2000. Falling prices were observed for gasoline, residential natural gas, liquefied petroleum gas, and home heating oil. (See table 2.) Natural gas. The last 5 years have shown volatile price movements within the natural gas market, especially looking at the years 2000 and 2001. Prices were relatively lower and more stable in 1998 compared with 1997. Throughout the 1998-99 winter heating season, the natural gas index fell, but at a smaller magnitude compared with the previous season. Mild winter weather caused less demand for consumption, and therefore resulted in higher storage levels. By the winter of 1999-2000, weather conditions continued to be much warmer than expected; therefore, prices remained low.

Natural gas prices began to rise considerably in 2000 when the combination of decreasing supplies, high crude oil prices, and weather-related demand pushed natural gas prices to new heights. Demand for natural gas rose as consumers began switching from higher-priced crude oil to lower-priced natural gas. During the spring and early summer of 2000, supplies began to tighten, causing the price of natural gas to climb throughout the rest of the year.

After surging 192.6 percent in 2000, the PPI for natural gas decreased 65.6 percent for the 2001 calendar year. Prices began to drop significantly in February and March as milder temperatures moved into the high consumption regions, causing storage levels to rebound. Mild temperatures continued through October, which allowed prices to continue to decline. In November, the natural gas index shot up 56.4 percent as a result of colder weather. By the end of the year, mild weather pushed gas storage stocks to record levels, which helped push prices down again. (1)

For the 12 months ended in December 2001, industrial and commercial natural gas prices declined 36.7 and 24.3 percent respectively, falling to their lowest levels since May 2000. A sharp decrease in spot natural gas prices pulled gas prices substantially lower from their record highs in January 2001, when the conjunction of falling supplies, rising crude oil prices, and higher weather-related demand helped push natural gas prices to unprecedented heights. After an 83.1-percent jump in 2000, the index for natural gas to electric utilities fell 39.9 percent in 2001. The index for residential natural gas decreased 22.1 percent in 2001, following a 41.8-percent gain in 2000. After January 2001--the peak of residential natural gas prices--this index declined sharply as a result of increased production levels and record supply numbers. In December 2001, residential natural gas prices were at their lowest point since May 2000.

The liquefied petroleum gas (LPG) index decreased 55.3 percent in 2001, after an increase of 49.3 percent in 2000. Prices fell with the help of mild weather throughout the summer and fall of 2001. Over the last 6 years, liquefied petroleum gas prices have experienced a period of volatility. In 1996, prices increased as a cold winter season created higher demand and a large drop in inventories. By the start of 1997, however, prices began to fall and continued in a downward trend until the end of 1998. This period was marked by decreasing demand due to warmer-than-normal temperatures, restored inventories, higher production levels, and strong imports in the LPG market. Lower prices in the crude petroleum and natural gas markets also helped lower the LPG index for 1997 and 1998. From January 1999 until February 2001, LPG prices rallied with rising prices for crude oil and natural gas.

Petroleum-based products. Prices for crude petroleum dropped 42.4 percent in 2001, following an 11-percent gain in 2000 and a 172-percent surge in 1999. In March of 1999, both Organization of Petroleum Exporting Countries (OPEC) and major non-OPEC member countries announced an agreement to reduce oil production, in order to bolster lackluster prices from previous years. Throughout 1999, oil prices increased dramatically, which ultimately resulted in OPEC receiving international pressure to raise their output. In March of 2000, OPEC decided to raise output by 1.7 million barrels per day. (2) Consequently, production from OPEC members increased throughout the year 2000. However, prices continued to climb as worldwide economic growth generated demand that outpaced the increased supply. By 2001, the combination of improved oil supplies and lower demand due to the economic recession in the United States helped bring prices down from their previous year's level.

Looking further down the pipeline for petroleum-based products, the index for jet fuels fell 44.3 percent in 2001, after advancing 42.6 percent a year earlier. From the spring of 1999 through the summer of 2000, jet fuel prices rose due to the large increase in crude oil prices during the same period. After peaking in September 2000, prices finally leveled off with the increase in inventories and began falling in the early part of 2001 as a result of declining oil prices. Starting in April, volatile supply levels created a price roller coaster for jet fuels causing the index to jump up in May, fall in July, and rebound in early September. Following the events surrounding the September 11, 2001, terrorist attacks, prices once again dropped due to falling demand.

The PPI for gasoline declined 33.1 percent, following a 17.2-percent increase in 2000. Prices were relatively stable up until April, when gasoline shortages caused a significant rise in prices. Refineries then greatly advanced production, pulling prices down considerably during the late spring. In response to lower prices, refineries once again adjusted and set production levels lower. These production cuts, combined with a late summer surge in demand, put upward pressure on gasoline prices. Demand, however, declined due to the events of September 11th and the end of the driving season. Furthermore, OPEG's inability to reduce global output resulted in an excess supply of oil in the world market, causing a substantial drop in gasoline prices.