Slide 6 of 30
Notes:
- EIA sees a tenuous supply/demand balance over the remainder of 2001. Global inventories remain low, and need to recover to more adequate levels of forward demand coverage in order to avoid continued price volatility.
- The most recent data show OECD inventories remaining at very low levels. Low inventories increase the potential for price volatility throughout 2001.
- Inventories are a good measure of the supply/demand balance that affects prices. A large over-supply (production greater than demand) will put downward pressure on prices, while under-supply will push prices upward.
- OECD inventories illustrate the changes in the world petroleum balance. OECD inventories rose to high levels during 1997 and 1998 when production exceeded demand and prices dropped to around $10 per barrel in December 1998. However, when demand exceeded production in 1999 and early 2000, inventories fell to low levels, and prices rose, averaging almost $35 per barrel (WTI) in November 2000.
- The base case assumes no further drop in OPEC production. The two other cases illustrate the potential imbalance that would develop were OPEC to drop production in April and not increase again later in the year. Both alternative cases are not tenable long-term solutions.
- Thus, EIA’s forecast of a continued low stock cushion implies we could see price volatility from the crude oil market--apart from volatility stemming from product markets.