Slide 2 of 19
- Spot WTI 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 has 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 very tenuous supply/demand balance. With low inventories, a severe cold snap in Europe and the U.S. would increase refinery demand for crude, and push prices up. If the Iraqi disruption is thought to be indefinite, prices could be as high as $3-$5/barrel higher than shown on this graph.
- However, EIA believes the market will move toward a more typical balance during 2001 and that prices will remain around $30 per barrel until the middle of the year, as the match of supply and demand improves.