Slide 2 of 17
Spot WTI prices broke $35 and even $36 per barrel in November as anticipated boosts to world supply from OPEC and other sources failed to find much realization in actual stocks data. The idea that stocks are still languishing at below-normal levels is particularly persuasive when one views current levels (for key consuming regions) relative to “normal” values which account for the long-term trend in OECD stocks.
We believe that monthly average WTI prices will stay around $30 per barrel for the first part of 2001. This is a noticeable upward shift in our projected average prices from even a month ago. The shift reflects greater emphasis on the lack of stock builds and less emphasis on the assumption that supply from OPEC and non-OPEC suppliers may be exceeding demand by 1-2 million barrels per day.
Despite the upward revision to the price projections, we still believe the market will move toward a more typical balance as 2001 proceeds and bring lower prices along with it. However, an average WTI price of $29.00 in 2001 is implied, compared to $28.75 in 2000 and $17.50 in 1999. Recent fluctuations in crude oil prices show that there is still some vulnerability to downward as well as upward corrections. The possibility that we may see greater supply than is captured in our base case is indicated in our lower probability range for prices.