Asphalt Supply Dynamics Appear to be Insulating Asphalt PPI from Oil Price Declines

Oil prices fell from more than $105 per barrel in June 2014 to under $60 per barrel by the end of the year. Based solely on the historical oil-to-asphalt relationship, PCA expected that asphalt prices would experience a similar decline – to the tune of nearly 30 percent. However, the asphalt PPI through July 2015 is down only four percent from the end of 2014. PCA estimates the asphalt supply dynamics are insulating the asphalt PPI from oil price declines.

Asphalt supply issues have arisen in recent years due to a number of factors, particularly the use of cokers at refineries. Cokers are capital intensive equipment that can further refine the heavy residual material left over from traditional oil refining thus leaving decreased feedstock for roofing tar, road oil and asphalt. According to the U.S. Energy Information Administration, U.S. Product Supplied of Asphalt & Road Oil has decreased more than 37 percent on an annual average basis since 2006. If current trends among oil prices and asphalt supply hold, PCA estimates asphalt’s PPI decline will be much more muted than that of oil – to the benefit of concrete’s relative competitiveness.