Slide 3 of 26
Notes:
- Spot WTI crude oil prices broke $35 and even $36 per barrel in November as anticipated boosts to world supply from OPEC and other sources did not show up in actual stocks data.
- The recent decline in prices seems to be more the result of an unraveling of speculative pressures than a change in underlying fundamentals.
- Prices had been running higher than supply/demand fundamentals would have indicated throughout the fall months as a result of rising Mideast tensions, concern over the adequacy of distillate supplies, and expectations of Iraqi supply interruptions.
- But Mideast tensions seemed to ease in December and the market appeared to perceive a quick return of Iraqi crude oil supplies at full capacity. Pledges by Saudi Arabia/OPEC to offset a longer term Iraqi disruption added to a market sense of oversupply.
- Relatively mild weather in Europe allowed distillate stocks to normalize there and has kept crude demand relatively stable.
- All these factors seemed to refocus speculators on the downside potential for price, at least through December.
- EIA still sees a tenuous supply/demand balance. Global inventories remain low, and need to recover to more adequate levels of forward demand coverage in order to avoid continued price volatility.
- However, EIA believes the market will move toward a more typical balance during 2001 and that prices will remain around $30 per barrel throughout the year, as inventories are expected to remain low.
