Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Ivan, Gulf Coast crude oil production fell sharply by 1.4 million bpd, which is 83 percent of
typical daily Gulf Coast crude oil production. 57 Although the affected companies restored a fair
amount of production relatively soon after Hurricane Ivan, many continued operating at reduced
capacity as they repaired damage. The damage caused by Hurricane Ivan ultimately led to the
shut-in 58 of more than 32 million barrels of crude from September 11 through November 29.
This is equivalent to 5.4 percent of the yearly production of oil for the Gulf of Mexico. 59
Hurricane Ivan also disrupted oil tankers from Venezuela, creating a three-day delay on
deliveries to the U.S. 60
3. Workers in Norway.
Norway is a major non-OPEC source of oil for the world. 61 Indeed, in 2003, Norway
was the third largest world net oil exporter behind Saudi Arabia and Russia. 62 In 2004, labor
strikes affected drilling on Norway’s continental shelf for certain periods from June through
October. 63 In June 2004, the workers struck for seven days, reducing crude oil production by
approximately 375,000 bpd. The strikes forced another shutdown of 200,000 bpd in early
September and another 300,000 bpd in early October. 64
C. In 2004, the Geopolitical Outlook in Certain Areas Created Concern about
the Overall Stability of Crude Supply, and Futures Prices may have
Reflected these Concerns.
1. An uncertain geopolitical outlook in 2004.
In 2004, the geopolitical outlook in certain areas appeared to threaten the production
capacity of some major oil producers. For example, Saudi Arabia, the top supplier of crude oil
for the world, 65 faced attacks and suicide bombings from terrorists. 66 In Nigeria, 67 civil unrest,
attacks on oil workers, sabotaged pipelines, and striking workers created the possibility of supply
disruption. 68 Even incidents that do not directly affect current crude oil production, however,
can create concerns and fears about potential crude supply disruptions and thus contribute to
increases in crude spot and futures prices. Fear of potential disruptions causes buyers to bid
more for current production. For example, analysts focused on the financial difficulties of one of
Russia’s largest oil producers – Yukos – as the government sought substantial back taxes. 69 Fear
that Yukos’ future production might be curtailed, causing a future supply shortage that would put
upward pressure on prices, led buyers to bid up futures prices.
For the most part, however, production actually did not decrease significantly in any of
these countries of concern; indeed, in some, it increased. As discussed in more detail below,
Saudi Arabia’s production increased during the year. 70 Nigeria consistently managed to export
crude oil, at increasing levels. 71 Despite tax worries and conflicts with the Russian government,
Yukos’ production levels did not decrease significantly.
Nevertheless, concerns and fears about the potential for crude supply to be disrupted may
have contributed to increases in both spot and futures prices for crude oil. For instance, if futures
CHAPTER 2: WORLDWIDE SUPPLY, DEMAND, AND COMPETITION FOR CRUDE OIL 29