| Sumari: | Like most accidents, the price explosion of 2004−5 was the result of an unlikely combination of events. In 2004 world oil demand was about 2 mb/d above trend, mainly in China but also in the United States, while non-OPEC supply was 0.5 mb/d below. OPEC through 2003 and early 2004 carefully managed to prevent any excessive build-up of stock in importing countries, then, as prices surged in mid 2004, it became clear that Iraq and Venezuela were producing less than expected. Finally, in 2005, Hurricane Katrina disabled some production and about 2 mb/d of refining capacity in the USA. ‘Normally’ one could expect these exceptional and unrelated events to unwind and prices to return in a couple of years, as they always have done after previous surges, to something like a 5-year average. Depending on whether one includes 2004 itself, this would be $26−29 or less.
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