Sharp fall in crude oil prices
The producer price index fell for the first time since February 2018. Higher prices on electricity were offset by a substantial fall in the price of crude oil.
The declining prices on crude oil during this autumn resulted in a relatively low price in November 2018. For the first time in a year the price of Brent Blend fell below 60 USD per barrel, and the observed recovery of prices on crude oil was to a large degree reversed, according to new figures in Producer price index.
Crude oil: mixed predictions, one outcome
An unanticipated surplus in American crude oil inventories was considered one important reason behind the drop in the prices from October to November. However, markets initially anticipated an increase in crude oil prices due to US sanctions on Iran oil exports which took effect early November. The impact of these sanctions was however reduced as some important importers of crude oil were granted exemptions. The 16 per cent decline in the crude oil price from October to November this year differs markedly from the same period in 2017 during which the price on crude oil increased sharply.
Figure 1. Price indices. 2010=100
|PPI total||Extraction of crude oil|
Measured in NOK, the price on crude oil fell less because the krone weakened against the USD from October to November. Despite a weaker krone, the Norwegian PPI fell 3.2 per cent from October to November. The Norwegian PPI has not experienced such a monthly decline for about two years. In addition to the fall in the crude oil price, the price on natural gas fell slightly from October to November. During winter, the demand for natural gas from continental Europe usually increases, and this could explain the relatively moderate decrease in prices in an otherwise relatively unstable petroleum market.
Higher electricity prices
The Norwegian Water Resources and Energy Directorate reported increasing prices during November, which is also observed in electricity prices measured in the Norwegian PPI. Electricity prices typically increase during autumn as the season usually brings colder temperatures. However, the price development in 2018 is characterised by unusually high electricity prices during summer followed by declining prices during the autumn. The price increase from October to November was caused by a combination of lower capacity in production of nuclear power in Sweden, persistently low production of Scandinavian wind power, higher price on CO2 quotas and anticipated lower temperatures. The PPI for electricity was about 40 per cent higher compared to November 2017, despite the previous decline in electricity this autumn. With 8.4 per cent higher prices from October to November 2018, electricity prices reduced the overall fall in the PPI.