WASHINGTON, D.C. --- What factors have caused the price of West Texas Intermediate to climb from $20 to $30 per barrel in 2000-2002 to more than $70 per barrel in the past couple of weeks?
According to the Energy Department, the main factors are strong global demand, especially in China and the U.S.; limited surplus capacity, both upstream and downstream; and major weather and geopolitical threats that have underscored the need for additional surplus capacity.
The Energy Department’s Energy Information Administration (EIA) said that world oil demand grew by 1.5 million barrels per day in 2003, 2.6 million barrels per day in 2004, and at least 1.1 million barrels per day in 2005. This phenomenal growth – considerably higher than historical patterns – came even as oil prices more than doubled.
Supply capacity growth has failed to keep pace. According to EIA estimates, surplus global oil production capacity – as high as 5.6 million barrels per day in 2002 – plummeted to 1.8 million barrels per day in 2003. It has been around 1 million barrels per day during most of 2004 to the present.
Concerns about weather and geopolitical risks have placed additional pressure on prices.
“Currently EIA expects global demand to grow by 1.6 million barrels per day in 2006 and an additional 1.7 million barrels per day in 2007,” the EIA said in its most recent weekly report. “Thus, demand is not expected to slow down in the short-term.”
Originally posted on Fleet Financials