Oil price increases of 2004 and 2005

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Gas prices in Portland, Oregon during the 2004 price increase, up from regular under $2 prices

The price of light, sweet crude oil on NYMEX has been above $40/barrel since late July 2004. By October the price of crude oil had temporarily surpassed $55/barrel. In the United States of America, the Consumer Price Index rose by 0.6% compared to 0.2% for September. This was driven by a 4.2% increase in energy costs.

The cause is the current and expected demand in relation to the supply of petroleum.

Demand

High demand is coming from increased industry in emerging third world nations including India and especially China which is developing a large car culture and whose manufacturing bases have grown very rapidly in recent years.

Consumption in 2004 compared to 2003 according to DOE EIA estimates: [1] (http://www.eia.doe.gov/emeu/international/petroleu.html)

• World: 3.4% increase
• China: 20%
• UK: 8%
• US: 6%
• Asia outside Japan and China: 6%

Oil price in 2003-2005

Supply

News articles have explained the low supply in the following ways: the war in Iraq that has destroyed some of Iraq's oil refineries, hurricane Ivan's damage to offshore oil platforms in the Caribbean, YUKOS in Russia, civil unrest in oil producing West Africa especially Nigeria, worker's strikes and mechanical problems with oil production in Norway.

World supply (specification (http://www.eia.doe.gov/emeu/ipsr/appb.html)) came in at 83 million barrels a day during 2004 in department of energy EIA calculations ([2] (http://www.eia.doe.gov/emeu/international/petroleu.html)). This rate of increase is faster than that of any other date in the past.

Spring 2005 increase

After retreating for several months during the winter of 2004/2005, prices rose to new highs in March 2005. The price of light, sweet crude oil on NYMEX has been above $50/barrel since March 5, 2005. On March 16, 2005, the price surpassed the October 2004 high of $55.17 to close at $56.46. On March 18, the price reached a new high of $57.60. This price was 50% higher than a year earlier. It should, however, be noted that the $50-$60 range is still well below the all-time inflation-adjusted high of $90 reached in 1980.

This spike was largely without the immediate causes of the fall of 2004. During this period the Bush administration was expanding the Strategic Petroleum Reserve at a rate of 250,000 barrels per day. Analysts vary in their explanations of the price increases. One factor cited is that winter in the US was colder than usual, though this became less relevant as spring approached. Another reason is the continued growth in world demand, helped by the stellar growth of India and China. Finally, the dollar continues to slump against the euro. Since oil is traded in dollars, the price must increase for OPEC to maintain buying power in Europe. Some analysts conclude from this that the increases are permanent and prices may go much higher. Goldman Sachs released a report predicting that prices could hit $100 at some unspecified date.

In April 2005 the price began to fall, reaching $53.32 on April 9. It then reversed course and headed to an all time high of $58.28, driven mainly by lingering concerns of a prolonged weak dollar.

In June 2005, the Bush administration announced that the Strategic Petroleum Reserve was full, and that the ending of federal oil stockpiling would increase supply and temporarily ameliorate fuel prices. Crude oil prices promptly surged to a record high of $58.60 and later $59.52, on concerns about the true state of affairs.

Effects

While some see these increases in the price of oil leading to a recession comparable to those that followed the 1973 and 1979 energy crises, most economists see this as unlikely. All developed countries have high fuel taxes that decrease as oil prices increase and can be eliminated in the event of a dramatic price spike. The American Strategic Petroleum Reserve could serve a similar role in overcoming price increases in an emergency.

The western economies are as reliant on oil as they were thirty years ago, despite substantial growths in productivity. In the United States, for instance, each $1000 dollars in GDP required 2.4 barrels of oil in 1973 when adjusted for inflation this number had fallen to 1.15 by 2001.

See also

• energy crisis
• 1973 energy crisis
• 1979 energy crisis
• 1990 spike in the price of oil
• List of recessions
• Hubbert curve and Hubbert peak
• Petroleum
• Abiotic oil

External links

• Oil Prices and the Iraq War: Market Interpretations of Military Developments by US Navy CCC (http://www.ccc.nps.navy.mil/rsepResources/si/apr03/middleEast.asp)
• The Association for the Study of Peak Oil and Gas Newsletters (http://www.asponews.org/)
• graph of staggering oil price increase (http://www.futuresource.com/charts/charts.jsp?s=CL1%21&o=&a=M&z=800x550&d=LOW&b=CANDLE&st=)
• graph of oil prices in relation to other fossil fuel prices (http://oilnergy.com/1combo.htm)
• US DOE EIA retail gasoline prices (http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_home_page.html)
• US DOE EIA retail gasoline and diesel prices charts (http://tonto.eia.doe.gov/oog/info/gdu/gasdiesel.asp)
• Top Saudi Says Kingdom Has Plenty of Oil (http://www.washingtonpost.com/wp-dyn/content/article/2005/06/09/AR2005060900148_pf.html) "261 billion barrels in reserve..."