Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
expect increased demand for crude oil at current prices to produce crude oil price increases.
Throughout most of the 1990s, however, crude prices remained relatively stable, suggesting that
crude producers increased production to meet increased demand. See Figure 3-6, supra.
$ In 2004, Crude Producers Were Unprepared to Produce Enough Crude Oil to Meet
Larger-than-Predicted Increases in World Demand. Crude Oil Prices Increased Because
There Was Not Enough Crude Supply to Meet Increasing Demand at Previous Price
Levels. Steep Increases in World Prices for Crude Oil Caused Steep Increases in
Gasoline Prices.
Crude oil producers had set 2004 production levels based on much lower projections for
demand growth than actually occurred. Projections had placed likely growth in world demand
for crude oil at 1.5 percent. In fact, the 2004 rate of growth in crude demand was more than
double the projections: 3.3 percent. See Figure 2-6. Large demand increases from rapidly
industrializing countries, particularly China and India, made supplies much tighter than expected.
This phenomenon was not limited to crude oil. Other commodities that form the basis for
expanded growth in developing economies, such as steel and lumber, also saw unexpectedly
rapid growth in demand, along with higher prices.
Million Barrels per Day
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0.0
-0.1
Source: IEA
Figure 2-6: 2004 Predicted vs. Actual Crude Oil Demand Increase,
Million Barrels per Day
Predicted Demand Increase
Actual Demand Increase
US Other North
America
Europe China Other Asia
(inc. India)
Country or Region
Middle East Latin
America
Rest of
World
In addition, unexpected production difficulties reduced some producers’ crude output, putting
upward pressure on prices. Finally, the 2004 political outlook in certain regions, including
prospects for terrorist incidents or civil unrest, appeared to threaten the production capacity of
vi
FEDERAL TRADE COMMISSION, JUNE 2005