Why Are Oil Prices So High

and Where are They Going?

Guy F. Caruso
Administrator
Energy Information Administration

Global Finance Forum

Washington, DC
March 11, 2008
www.eia.doe.gov
Tight global oil market conditions are projected to
continue through 2008.

• OPEC production decisions will continue to influence the oil

market situation.
• Low surplus production capacity of 2 to 3 million barrels per
day, concentrated in Saudi Arabia, weakens the market's
ability to respond to supply disruptions.
• Oil prices likely to remain high at least through 2009.
• Many uncertainties could alter the outlook and create volatility
in global oil markets.

Short-Term Energy Outlook

Crude oil prices, having recently exceeded $100 per
barrel, are projected to decline slowly over the
forecast.

100 Crude prices often decline just

90 prior to winter
80
70
WTI
Price 60
(Dollars
per 50
Barrel) 40 But did not this
winter
30
20
10 Forecast
0
Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

WTI = West Texas Intermediate crude oil.

Short-Term Energy Outlook
OPEC cut crude oil production in 20064Q and
2007Q1 to firm world oil markets.
Change in Quarterly Production
(million barrels per day)
1.3

0.8

0.3

-0.2

-0.7

-1.2
2006Q4 2007Q1 2007Q2 2007Q3 2007Q4

Saudi Arabia Rest of OPEC

Short-Term Energy Outlook
OECD commercial stocks have fallen to the lower
bound of the average range.
65

Forecast
60

55
Days supply
50

45

40
3

Ja 4

Ja 8

9
7
04

09
03

05

06

07

08
l-0

l-0
l-0

l-0

l-0

l-0

l-0
n-

n-

n-

n-

n-

n-
n-
Ju

Ju
Ju

Ju

Ju

Ju

Ju
Ja
Ja

Ja

Ja

Ja
Short-Term Energy Outlook
Market balance should loosen as demand growth
slows and non-OPEC supply growth increases.
World Oil Consumption Growth Non-OPEC Production Growth
1.6 1.6 1.6
1.5 1.5
1.4 1.4 1.4
1.4 1.4
1.2
1.1 1.1 1.2

0.9
Million
0.8
Barrels
per Day

0.3
0.2
0.1

0.0

3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 2008- 2009- 2009- 2009- 2009-
Q4 Q1 Q2 Q3 Q4

Short-Term Energy Outlook

We expect OPEC surplus production capacity to
remain low until 2009.
6.0

5.0

4.0

Million
Barrels 3.0
per Day

2.0

1.0

0.0
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Short-Term Energy Outlook

Dollar-based economies have experienced higher oil
prices than those with other currencies.

120

$95.39
100

80 $ per barrel
West Texas
Intermdiate
60 €64.68
(Dollars/Euros
per Barrel)
40 € per barrel

20

0
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

Short-Term Energy Outlook

Multiple and hard-to-predict factors drive oil prices.

Non-OPEC Hedge Fund

OPEC Supply Growth Activity
Production
Decisions
China’s Oil Demand
Weather
Iran Iraq

Economic
Growth Refinery
Venezuela
Outages

Value of
U.S. Dollar Nigeria
 World oil prices ease in the near-term, but are likely
to remain high relative to historic standards

$200
$180

$160 High Oil Price Case

Nominal Dollars per Barrel

$120 $113
Reference
Case
$80
$69

$40

Low Oil Price Case

$0
1980 1990 2000 2010 2020 2030

Annual Energy Outlook 2008

 Why do we think prices will decline over the
next ten years?
• Production increases are expected in both OPEC
and non-OPEC countries
– Nigeria, Angola, and Saudi Arabia
– Azerbaijan, Brazil, Kazakhstan, and U.S. Gulf of Mexico
• The high oil price environment of the past several
years has provided sufficient incentives to spur
increased growth in unconventional supplies
– Canadian oil sands
– Brazilian and U.S. biofuels
– Qatar gas-to-liquids
• Significant projected growth in global natural gas
liquids
 Periodic Reports
Petroleum Status and Natural Gas Storage Reports, weekly
Short-Term Energy Outlook, monthly
Annual Energy Outlook 2008, March 2008
International Energy Outlook 2007, May 2007

Examples of Special Analyses

“Economic Effects of High Oil Prices,” Annual Energy Outlook 2006
Analysis of Oil and Gas Production in the Arctic National Wildlife Refuge,
March 2004
The Global Liquefied Natural Gas Market: Status and Outlook, December 2003
“Impacts of Increased Access to Oil and Natural Gas Resources in the Lower 48
Federal Outer Continental Shelf,” Annual Energy Outlook 2007

www.eia.doe.gov
Guy F. Caruso
guy.caruso@eia.doe.gov