|SWith continued strong demand growth and little
surplus capacity readily available, EIAs forecast in the short term is for
continued price strength. Some
forecasters see prices returning to much lower levels sooner than we do. Our forecast continues to hover near $40
through 2005 for crude oil, with
product prices keeping pace in their usual manner. Needless to say, there is much uncertainty.
|SOn the down side:
| Future strong demand growth is expected in
non-OECD areas, which are areas in which we have the least knowledge. Could demand growth slow more than
expected? Certainly, but right now it
looks like it will remain relatively strong.
|The lack of surplus world production capacity
is not something that gets resolved overnight. The timing of new production capability is
uncertain, and it is possible that more capacity could be put in place than
|SOn the up side:
|Although world demand growth is expected to be
less in 2005 than this year, it is expected to remain strong. From what we do know about areas like
China, even with higher prices, the need for petroleum will likely remain
strong. In OECD areas, the demand is
driven by transportation fuels, which are less sensitive to crude oil price changes than
non-transportation fuel petroleum sectors.
|The need for more crude oil production
capacity cannot be resolved quickly, and is expected to remain an issue
throughout the high winter demand season.
Although we may see some relaxation in the second quarter next year,
if OPEC does not keep up production to re-build inventories when demand drops
seasonally, the markets could remain particularly tight. Relentless demand growth is expected to
stay neck in neck with capacity growth for some time.
|Last, high world refinery utilization slows
re-balancing of the markets when extra crude oil production does become
available, keeping pressure on product prices beyond when crude markets may
begin to rebalance.