Slide 9 of 15

Notes:

• The crude market is the major factor behind today’s low stocks.

• This graph shows the balance between world production and demand for petroleum. Normally, production exceeds demand in the summer, building stocks, and is less than demand in the winter months, drawing the stocks back down (dark blue areas).

• However, production exceeded demand through most of 1997 and 1998, building world stocks to very high levels and driving prices down. But the situation reversed in 1999.

• Recently, there has been more petroleum demand than supply, requiring the use of stocks to meet petroleum needs. Following the extremely low crude oil prices at the beginning of 1999, OPEC agreed to remove about 6% of world production from the market in order to work off excess inventories and bring prices back up.

• They succeeded. In 1999, production fell short of demand by over 1 million barrels per day. EIA estimates that if OPEC continues to produce at the rates seen in the last quarter 1999, the world will be short about 1-2 million barrels of crude oil per day, as shown by the continued dark blue area on the chart where demand exceeds supply through the end of 2000.