Slide 6 of 25
- 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 $34 per barrel. .
- EIA’s base case shows OECD inventories recovering and approaching seasonal levels seen in the first half of the 1990’s as a result of increases in OPEC production. But because demand has grown since the first half of the last decade, this volume of inventories leaves less cushion in terms of days of supply than we had 5 years ago.