29- www. energy- future. com 3.1- Supply and markets can suffer if crude prices rise as they did last summer. It's basic supply- and- demand stuff: when the commodity gets too expen-sive, people stop buying it. So oil compa-nies, or producers, have to tread a fine line. They spend hundreds of billions of dollars up front, so if demand for their product falls, so do their profits. It's in their interest to keep the oil flowing at affordable prices. Q So when oil prices hit their record of more than $ 147/ b last year, people stopped using oil? A Again, not so simple. Demand for oil can fall - as it has for the past two years - but only so far. But the oil market does react very quickly to changes in demand. Last year's bumper prices persuaded people to be more efficient - everything from pumping up the tyres on the car to make it go further on a litre of gasoline, to selling the SUV and buying a bike - and prices fell quickly in response. Q What have speculators got to do with price rises? A Okay, hold steady, because it gets even more complex now. People don't just trade barrels of crude oil. They trade bits of paper that promise delivery of barrels of crude oil at a given time. So some clever investors looked at the oil market in recent years and decided that it was a one- way bet. China and India were surging and gobbling up spare oil, the economies of the West were ticking along nicely, and many oil produc-ers were struggling to keep up. It looked like oil prices would rise indefinitely. So these investors started buying paper contracts, holding them for a time while the oil price continued rising, and then selling them for a profit. You had two upward forces on the market: one connected to the " fundamen-tals" of weak supply versus strong demand; and one relating to investors buying paper contracts and pushing the prices up even further. It got pretty crazy. Q And then it crashed. A Yes. The credit crunch happened and all of a sudden everyone started feeling a whole lot poorer. The idea that the world would keep growing richer and needing more oil disappeared. A lot of the speculators were from banks, so when those banks' mortgage departments got into trouble, lots of them sold their paper contracts in the commodi-ties markets to cover losses elsewhere. Prices started to recover towards the middle of 2009 after the most powerful group of sup-pliers - those belonging to the Organization of the Petroleum Exporting Countries, or OPEC - decided that to help lift prices they would take supply away from the market. The feeling that the world economy was coming out of recession helped too. But with so much volatility in the last two years, investors are nervous. The big ques-tion now is: " What oil price will keep future supplies coming, but won't bankrupt the world economy again?" Q And what's the answer? A If I'm pushed, probably somewhere around $ 65 a barrel. But no- one can put a figure on it, really. The best thing would just be a stable oil price that allowed consumers and producers to plan ahead. ?? OPEC oil production, 2008- 09 million barrels a day$ a barrel North Sea Brent oil price ( RH scale) Source - International Energy Agency AugOctDecFebAprJunAug 27 28 29 30 31 32 30 60 90 120 150

30- www. world- petroleum. org 3.1- Supply and markets ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??