2005 - OPEC

demand growth forecast for 2005 and concerns over lower OPEC output. A late winter cold
spell also helped to sustain market bullishness, amid a weakening dollar.
Crude oil prices continued to gain momentum in March on the bullish sentiment that had
emerged in late February. The Basket in March saw a new monthly average of $49.07/b,
which represented a jump of $7.40/b, or 18 per cent over the previous month. Prices were
driven in the first half of the month by the lack of arbitrage flows into Asia, weak economic
conditions and high freight rates across the Atlantic, as well as rising global demand and
downstream bottlenecks. The late winter snap in the US northeast, an upward revision to the
IEA demand forecast and concerns that OPEC supply would not be enough to meet demand
increased prices further. This occurred despite OPEC’s decision, taken at the 135th Meeting of
the Conference, to increase its production ceiling by 500,000 b/d to 27.5 mb/d.
In April, the Basket saw its lowest monthly rise thus far in 2005, edging up ¢56, or slightly
over one per cent from the previous month, to $49.63/b, amid consultations for a possible
further OPEC output hike. Market fears, however, were encouraged at the start of the month
by an investment bank report that forecast the possibility of an almost doubling of the oil
price, as well as concerns over spare downstream capacity in the run-up to the US summer
driving season. These factors sent the Basket to a monthly high on 4 April, closing at $53/b.
However, ample OPEC supply kept crude oil stocks rising, which in turn, helped to calm the
market. In the last few days of the month, the Basket trended lower following a downward
revision to the IEA’s forecast for global oil demand, which highlighted a slowdown in US
economic growth and the fact that crude oil stocks were at a three-year high.
In May, the market was particularly bullish towards the end of the month following a strike
at the oil major Total’s five European refineries, igniting fears of a possible shortfall in re-
fined products. However, other drivers shifted the price lower during the first three weeks of
the month. For example, crude oil stocks in the US built to a six-year high, providing further
evidence of ample supply in a persistently steep contango market. Comments by the IEA that
higher fuel costs and a weakening economic picture were denting global demand also added
to the downward pressure and the possibility of increased OPEC output supported calmness
in the marketplace. Overall in May, the Basket plunged $2.67 or 5.4 per cent, to average
$46.96/b for the month.
The Basket in June returned to an upward trend. Continued concerns over downstream capacity
constraints revived worries about tight distillates during the remainder of the year, and combined
with several refinery glitches in the Western hemisphere, the Basket price increased. Moreover,
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