Slide 5 of 18
Notes:
- As global production changed relative to demand, the world moved from a period of “over supply” in 1998 to one of “under supply” in 1999 and 2000. Inventories are a good means of seeing the imbalance between petroleum production and demand. For example, when production exceeds demand, inventories rise. A large oversupply will put downward pressure on prices, while undersupply will cause prices to rise.
- OECD inventories illustrate the changes in the world balance. OECD inventories rose to very high levels during 1997 and 1998 when production exceeded demand and prices plummeted to almost $10 in December 1998. However, when inventories fell to the low levels seen above during 1999 and early 2000 as demand exceeded production, prices rose to $35 per barrel at one point, and have settled above $30 per barrel.
- All scenarios shown leave inventories low through the winter. It would take an increase of 1 million barrels per day of production staring in the fourth quarter to get stocks back to normal levels by March before the start of the high summer gasoline demand period.
- The base case has stocks very slowly recovering, but not reaching normal by June of 2001.
- The 0.5 million barrel increase over the base doesn’t reach recovery until June, increasing the potential for volatility through the next gasoline season.
