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.
High demand is coming from increased industry in emerging third world nations including India and especially China which is developing a large car culture.
Consumption in 2004 compared to 2003 according to DOE EIA estimates ()
- World: 3.4% increase
- China: 20%
- UK: 8%
- US: 6%
- Asia outside Japan and China: 6%
News articles have explained the low supply in the following ways: the war in Iraq, hurricane Ivan's damage to offshore oil platforms in the Caribbean, YUKOS in Russia, OPEC's (most notably Saudi Arabia's) failure to bring prices down via dipping into spare capacity, civil unrest in oil producing West Africa especially Nigeria, worker's strikes and mechanical problems with oil production in Norway. It is an ever-growing list of explanations with new ones being added every month.
World supply (specification) came in at 83 million barrels a day during 2004 in department of energy EIA calculations (). Faster than any year in the past.
Spring 2005 increase
After prices 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 closing at $56.46. On March 18, the price beat this rising to $57.60. This made the price 50% higher than its year-ago level. It should be noted that the $50-$60 range is still well below the all-time inflation-adjusted high seen in 1980 of $90.
This spike was largely lacking 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. Reasons for these price increases vary depending on the analyst. One is the fact that winter in the US was colder than usual, although this became less and less relevant as year progressed towards spring. Another reason is that world demand also continues to increase, helped by the stellar growth of India and China. Finally, the dollar continues to slump against the euro. Oil is traded in dollars, and so in order for OPEC to maintain buying power in Europe, oil prices must increase. Some analysts thus feel that the increases are permanent and prices may go much higher. Goldman Sachs released an report predicting that prices could hit $100 at some unspecified date.
In April 2005 prices began to fall, reaching $53.32 on April 9.
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 economist 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. Moreover the western economies are about half as reliant on oil as they were thirty years ago. In the United States, for instance, each $1000 dollars in GDP required 1.43 barrels of oil in 1970. In 2000 this number had fallen to 0.74.