Slide 13 of 27

Low prices are the result of a world awash in excess crude oil, but how did we get there?

This chart shows world petroleum supply (in green) and demand in red. Normally, world demand for crude oil peaks in the winter as northern countries use greater amounts of distillate. World stocks are drawn down usually during the four and first quarters.

In the winter of 1995 and 1996, stocks were drawn down to very low levels after a cold first quarter. (The large red area indicates a large stock draw.) You may recall crude oil prices shooting up in spring ‘96 just as the gasoline season was beginning.

Then, Iraqi crude oil began to flow and production increases were occurring in other areas as well. A warm winter (1996/97) kept demand down, so there was little stock draw. Stocks continued to build over the summer, and with the Asian crisis and another warm winter, demand fell behind supply, and stocks built to overflowing in some areas.

While seasonally high world winter demand should cut into the over supply somewhat, if the Asian economy continues to suffer and production remains high, crude prices may stay fairly low for some time.