1991-1994

• Declining Differentials

• Major Factors

  • Crude prices fell as crude surplus developed (-)
  • Atlantic Basin light crude production increased (-)
  • Bottoms conversion capacity increased (0 to -)

Notes:

• After the Gulf War, the differential began to tumble.

• A weak economy in the early 1990’s held back world demand, but crude oil supply grew, putting downward pressure on prices. Declining crude prices tended to pull the light-heavy crude differential down.

• But the major factor at play seemed to be an increasing supply of light sweet crude oils -- particularly in the Atlantic Basin, which is a principal supply source for Europe and the U.S. Those differentials reached incredible lows in 1995 before picking up.

• Even bottoms conversion capacity worked to depress the differential during these years; although, its impact was probably small.