1	World Petroleum Market Changes and Impact on U.S. Joanne Shore John Hackworth Energy Information Administration OPIS Supply Summit October 2004
2	Overview What is driving petroleum prices? How high, how long? What does this mean for the U.S.?
3	Shifts in Crude Oil Price Levels
4	Demand & Supply Price Pressures
5	World Demand Swings: Not Above 2 MMB/D Since 1970’s & Recently Driven by Non-OECD
6	2004 World Demand Surprisingly Strong
7	OPEC Production Adjusts with Demand and Price
8	Significant OPEC Production Growth Required in 2004-5 To Balance Demand
9	Supply/Demand Balance: Inventories Surprising demand growth tightens market But does that explain price?
10	World Market Balance is Tight, But Similar to 2003
11	What Other Factors Might Be Affecting the Market Surplus crude oil production capacity? Surplus world refining capacity? Wrong crude oil being available? Speculators?
12	Surplus Crude Oil Production Capacity Shrank in 2004
13	Available Crude Capacity Affects Price
14	Surplus Crude Oil Production Capacity & Inventories Explain Price
15	Other Crude Oil Price Increase Theories... We have run out of world refining capacity It’s the wrong crude oil It’s those speculators (not fundamentals)
16	Has World Refining Capacity Maxed Out, Driving Up Product Prices? Recent claims of being maximum sustainable capacity are exaggerated Comparing world product demand and capacity can be misleading Must look at regional utilizations However, demand growth is outpacing capacity growth – for the moment
17	Asia is Where Major Increases in Refinery Utilization is Occurring Asian utilization increased, but “Asia” varies immensely China and India are big demand drivers and are adding capacity (soon enough?) Singapore export center utilization increased
18	Singapore Utilization Pattern
19	Atlantic Basin – Business As Usual
20	Are High Crude Prices Due to the “Wrong” Crude Oil being Available?
21	Speculators’ Influence Speculators are a factor in the market, but this focus is sometimes misdirected Speculators ultimately hover around fundamentals If speculators were banned from trading, would prices drop to $20 or $30? No. Fundamental factors (production, demand, available surplus capacity) explain most of the price level
22	How High for How Long? EIA Forecast Uncertainties
23	Crude Oil Price Outlook: Higher for Some Time (Monthly Average)
24	World Crude Market Future – Timing is the Key 2004 high demand growth unexpected, Growth ahead, but How much? Limited surplus crude production capacity & geopolitical unrest (e.g., Iraq, Russia) added price pressure. How fast will extra capacity emerge? When will instability decline?
25	What Does the Tight World Market Mean for the U.S. U.S. demand growing Sources of product supply U.S.? Imports? Factors affecting product imports Price implications
26	U.S. Light Product Demand Growth
27	Refining Capacity Surplus Shrinking Creating Short-Term Challenge
28	Role of Gasoline Imports – Now and in the Future Historically, imports have been an essential supply source Need increased import volume in future Will import supply be available? How essential these imports have been Why imports have been a competitive supply source Future impacts of U.S. specification changes The impacts of international supply/demand
29	Imports Have Been Economic
30	Gasoline Net Imports – An Essential Supply Source
31	Import Sources Nearby dedicated suppliers Canada Virgin Islands Venezuela Nearby economic sources Western Europe – symbiotic relationship Eastern Europe Latin America Africa Other incremental supply Middle East and Asia
32	Changing U.S. Sulfur Specifications May Change Import Sources
33	Some Historical Suppliers Cannot Produce Low Sulfur Gasoline But Others Filling In
34	Changing Specs and RFG Supply Sources into New York and Connecticut
35	EU-15 Demand Mix May Imply Excess European Gasoline Supply
36	Gasoline Import Availability Stable or Increasing W. Europe gasoline/diesel imbalance continues Increased E. Europe export capability Dedicated U.S. import sources remain Potentially high U.S. gasoline margins Decreasing U.S. gasoline spec changes limit supply sources in short run Demand outside U.S. growing faster than refining capacity
37	Petroleum Product Price Pressures Crude prices up What about product prices?
38	Gasoline & Distillate Cracks (Cents per Gallon) Increasing Volatility & Level Since 2000
39	Sources of Product Price Pressures Tight world petroleum markets translate to high crude oil prices and higher product cracks Imports likely to be more expensive due to U.S. product specification changes & high world demand Increased potential of U.S. price volatility from: Tight world markets (low inventories), Increasing number of fuels, High U.S. capacity utilization But higher product margins near term may encourage more U.S. refinery capacity expansion
40	Major Near-Term Uncertainties World demand remains strong, and winter is the world high demand season OPEC cannot control the market since it has little or no spare capacity Geopolitical unrest continues to cause crude oil supply interruptions Hurricanes created a temporary “gap” in U.S. supplies High refinery utilizations slow product rebalancing Timing to a more balanced market is highly uncertain