Crude oil prices reflect both current market conditions and market participants' assessments of developments that could affect the future balance between supply and demand. World consumption fell with the economic downturn, but resumed growing after bottoming out in 2009 at 84.7 million barrels per day (bbl/d), rising 3.2 million bbl/d over the next two years to reach 87.9 million bbl/d in 2011. That growth was driven by developing countries and is not always appreciated in countries like the United States, where petroleum consumption fell and still remains well below its 2005 peak.
Crude oil supply has been subject to a variety of disruptions, including the Libyan disruption in early 2011, which, in the face of continuing world demand growth, supported price increases. More recently, crude oil prices have been influenced by concerns over geopolitical issues that have impacted, or have the potential to impact, supply flows from the Middle East and North Africa, a region that is critical to overall global supply of crude oil. At the same time, supply from countries outside of the Organization of the Petroleum Exporting Countries (OPEC) has had some setbacks recently, including production drops in South Sudan, Syria, Yemen, and the North Sea.
Looking ahead, assessments of the decline rate for existing crude oil production, prospects for projects that can add liquids production at new and existing fields both inside and outside of member countries of OPEC, and geopolitical developments that have the prospect to disrupt production and/or the flow of crude oil into the marketplace, are key factors that enter into views of the future supply situation. The refiner acquisition cost of crude oil is expected to average about $114 per barrel ($2.71 per gallon) this summer compared with the $104 per barrel ($2.49 per gallon) average of last summer - an increase of 22 cents per gallon.
Crude oil prices remain the largest source of uncertainty for gasoline prices this summer. Most of the uncertainties related to supply, including the deterioration in the geopolitical situation leading to new or intensified supply disruptions, delays in new non-OPEC projects, or decisions by OPEC members to hold production below forecasted levels pose upside risk to prices. Most downside risks to the price forecast come from demand uncertainties. If the pace of global economic growth fails to recover in OECD countries, or if economic growth slows in non-OECD countries, prices could be lower. (See STEO Market Price and Uncertainty Report for further discussion.)