SThe first major factor tightening 2004 world supply/demand balances was demand growth, which grew much more than anticipated by most analysts.  China was probably the biggest surprise, as it grew by 1 million barrels per day from 2003, compared to 0.4 million barrels per day between 2002 and 2003.  China and the US combined, account for almost 60% of the increase in demand in 2004.
	SOn the supply side, growth in non-OPEC supply fell well short of meeting world needs in 2004, and is expected to continue to fall short for the next several years.
		–The largest source of non-OPEC production increase is expected to come from the FSU, which is expected to contribute more than 50% of the non-OPEC increase in supply in 2005 (0.5 million bbl/d of the 0.9 million bbl/d increase).  This is one of the reasons the market reacted to strongly this past year as Yukos’ financial problems threatened FSU export volumes.
		–Africa, Brazil and Ecuador are other major non-OPEC areas where  production increases are expected.
		–However there are no large new areas on the horizon that would add 1 to 2 million bbl/d of supply as the North Sea or the Alaskan North slope did in the 1970’s and 1980’s.
	STo meet demand, OPEC production must increase significantly, and as I will soon show, the surplus capacity ready to meet this demand shrank considerably in 2004, and for the next 2 years, EIA sees the world balance remaining relatively tight.