Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
Crude producers – particularly the producers that are part of OPEC and account for
approximately 40 percent of the world’s crude supply in 2004 – had not planned to produce the
quantity of crude that the world demanded. Relying on projections that were too low, the
members of OPEC set their production ceiling at levels that were lower than the increased crude
oil demand. Because producers were not supplying enough crude supply to meet increasing
world demand at previous price levels, the global market for crude oil tightened and crude prices
rose. 50
B. Certain Events in 2004 Disrupted the Production and Supply of Crude Oil.
A number of events in 2004 interrupted, or had the potential to interrupt, the supply of
crude oil. That supply disruptions occurred was not unique; some crude supply disruptions occur
every year. In 2004, however, with insufficient crude supply already causing higher prices, each
event had the potential to tighten the market for crude supply – and thus raise prices – even
more. Among a variety of events and other factors, three circumstances appear to have been
more significant than others: the instability in Iraq, hurricanes in the Gulf Coast, and a workers’
strike in Norway.
1. Supply disruptions in Iraq.
Insurgent attacks continued throughout 2004, destabilizing the Iraqi crude oil
infrastructure. Saboteurs attacked pipelines, various maintenance facilities, oil terminals, and
export terminals. 51 For example, on April 24, suicide bombers attacked Iraq’s Basra maritime
oil terminal, where roughly 90 percent of Iraq’s crude oil exports are loaded onto tankers. 52 The
Basra maritime oil terminal was closed for a period in June, when more attacks on two oil
pipelines in southern Iraq temporarily halted much of Iraq’s oil exports. 53
Iraq also shut down various facilities and pipelines for maintenance. For example, on
March 17, Iraqi officials halted a partial resumption of oil flow through Iraq’s Kirkuk-Ceyhan oil
export pipeline because of reported corrosion along the line. This pipeline remained idle for the
rest of the month. 54 During November, political unrest, insurgency and the continuation of the
war led to a sharp decline in Iraq’s production abilities. Insurgents sabotaged pipelines to both
the southern export terminals and to Ceyhan in Turkey, and the weather created some loading
delays. 55 In November, Iraq’s production fell by 430,000 bpd because of the incidents. Iraqi
production averaged 1.8 million bpd in November, whereas it had averaged 2.2 million bpd in
October. In total Iraqi exports fell to 1.35 million bpd from October’s 1.75 million bpd. 56 With
the start of December, pipelines were down and the 10 million barrel-capacity storage tanks in
Ceyhan were largely empty.
2. Gulf Coast hurricanes.
Three major hurricanes – Charlie, Frances, and Ivan – battered the Gulf Coast in 2004.
Each disrupted U.S. crude oil output, but Hurricane Ivan inflicted the largest interruption to
crude oil production that the U.S. has seen in the last two years. Immediately after Hurricane
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FEDERAL TRADE COMMISSION, JUNE 2005