Every month, I take a standard sample of the data on resin prices that are published regularly in this magazine, and I use this data to calculate my Resins Price Index. This proprietary index is designed to capture the major trends in overall resin prices. It is not intended to represent the actual prices paid for any particular type of resin, but rather it is a tool I use to analyze how the price of resin is affected by the trends in other macroeconomic indicators.
I created this index many years ago, and early in its inception the trend in the RPI exhibited a robust correlation with the trend in the price of crude oil. This was also true of the price for natural gas, which for many years moved in lockstep with the price of oil.
But in recent years, as the U.S. substantially increased its output of both oil and gas, the supply and demand dynamics for these commodities developed to a point where the historic price correlation deteriorated. As a result, I expected the correlation between oil and resin prices to diminish as U.S. resin producers increased their capacity to take advantage of cheaper sources of domestic natural gas.
As of now, I still discern a strong relationship in the trends for crude oil and resin prices. As the chart shows, there is a lag of three to four months at the major turning points, but the dominant trends in both data sets still exhibit a similar pattern. In other words, if you have an idea about the direction in which crude oil prices will go in the coming months, you can reasonably expect corresponding pressure on prices.
So as always, a fundamental question for all segments of the plastics industry is: "What is the outlook for crude oil prices in 2021?" At the present time, the latest data clearly indicates crude oil prices are well above the pre-COVID-19 levels, and they are accelerating. Not surprisingly, this rise in oil prices is also showing up in the price consumers are paying at the gas pump. Gasoline prices are now above their year-ago levels. It has been 11 months since gasoline prices last exceeded their year-ago levels.