Revisiting Oil Prices, Producer Price Index (PPI), and the Purchasing Managers Index (PMI) Nexus: China and the USA

Abstract

This study examines the lead–lag effect between the Chinese and US purchasing managers' index (PMI), and the West Texas Intermediate (WTI) crude oil prices for the period from January 2007 to April 2017 by adopting the wavelet theory model. The results show that oil prices were affected by the Chinese PMI in the long term after 2013, when China became the largest crude oil importer worldwide, bur supplies were greater than demand. In contrast, while the US PMI affected oil prices between 2008 and 2012, its dependence on foreign crude oil supplies declined, and thus its imports, afterwards. These results reveal crucial policy implications for both China and the United States. It also shows a structural change in oil prices and its role in the market between China and the United States.