First, few commodity markets have an institution like the Organizationof Petroleum Exporting Countries (OPEC). These prices suggest that, while the crude oil price might remain volatile, reactingto current market conditions, it is unlikely that prices will return to pre-2003 price increase levelsfor the remainder of 2005. Reserves and Production

The long term ability of the oil market to meet demand depends on the magnitude ofavailable reserves. Table 1 shows the R/P over the past 20 years for the world aswell as various regions. As U.S. total consumption has increased overthe period, the result has been that U.S. imports of oil have increased along with our dependence onother nations and the world oil market. European reserves are now dominated by members of the formerSoviet bloc, including Azerbaijan, Kazakhstan, Romania, and others. The world economy continued its recovery in 2003 and 2004 with gross domestic product(GDP) growth rates increasing in many regions. (17) 
While the United States and China increased their demands for crude oil and petroleumproducts as a result of their GDP growth, Russia, an oil exporter, improved its GDP growth rate asa result of the expansion of the petroleum industry. Recently, it might be thatthe relationship has been reversed: the high price of gasoline may have become a factor in keepingthe price of oil at elevated levels, especially on the New York Mercantile Exchange (NYMEX). The high utilization rates of refinery capacity in the UnitedStates, the lack of investments in new refining capacity, the extra costs associated with producingthe variety of different gasoline mixes to satisfy environmental requirements in various regions ofthe country, low inventories as the summer driving season 2004 approached, and the high cost ofrefinery investment to meet both product and site environmental requirements all contribute to therecord levels of gasoline prices. If inventories of either crude oil orgasoline are low relative to the past average, or in the perception of market traders, this is taken tobe an indication that the market is tight, implying that demand is nearly equal to, or might evenexceed, potential supply at current price levels. As a result, upward pressure on price occurs, evenif there is no physical shortage observable. Political unrest and strikes have disrupted oil exports from both Nigeria and Venezuela. Petroleum Product Demand

Product demand analysis reveals that there are regional and country differences in the mixof oil based products consumed. Conditions in the oil and oil products industries might not be so accommodating. If political events in the Persian Gulf caused the price of oil to rise, that price increasewould be transmitted to all oil produced around the world. Today, with the war on terrorism perceived as a long term reality, it may be that oilprices will incorporate a "fear factor" for a significant time. The nature of the exploration and production cycle in the oil industry encourages majorswings in the price of oil even in more politically stable times. The 2004, and potentially for 2005, oil market reflects the influence of a number of factorsall of which have led to upward pressure on price.
The price of oil began rising in October 2003 and reached record levels in 2004 and againin 2005. As a result of these price increases, consumers' budgets have been under pressure, businesscosts have risen, and oil producers' profits have increased. The 109th Congress is considering broadenergy legislation ( H.R. 6 ), that addresses conditions in the oil and petroleum productsmarkets.
A long term explanatory factor for increasing oil prices could be the decline of the worldreserve base. The reserves to production ratio is the measure which indicates the world's ability tomaintain current production, based on proved reserves. Over the past decade there has been littlechange in the reserve to production ratio, suggesting that, at least for now, long term forces are notdriving up the price of oil.
A wide variety of cyclic and short term factors have converged in such a way that the growthof demand has been unexpectedly high causing upward pressure on oil prices. Those factors whichhave been identified as contributing to the high price of oil include the resumption of relatively rapidgrowth rates of gross domestic product in many countries around the world, a declining value of theU.S. dollar, gasoline prices, the changing structure of the oil industry, OPEC policies, and thepersistently low levels of U.S. crude oil and gasoline inventories.
Expectations concerning future market conditions are quickly embodied in oil prices formedin futures markets like the New York Mercantile Exchange. The fear of terrorism and war,uncertainty concerning the relationship between the Russian government and the oil company Yukos,and other political factors are quickly reflected in price along with real political unrest like thatexperienced by oil producing Venezuela and Nigeria. Speculative buying and selling might alsoaffect prices as financial traders adjust their investment portfolios to reflect expected marketconditions.
Demand patterns for world oil and oil products show significant diversity by country, region,and product groupings. As a result of this diversity it is not possible to attach blame for the currentlevel of price to any one nation, region, or product segment. The view that the oil market isinternational in scope and tightly interrelated is enhanced by the demand data.
As a result of the integrated nature of the world oil market it is unlikely that any one nationacting on its own can implement policies that isolate its market from broader price behavior. As newmajor oil importers, notably China, and potentially India, expand their demand, the oil market likelywill have to expand production capacity. This promises to increase the world's dependence on thePersian Gulf members of the Organization of Petroleum Exporting Countries, especially SaudiArabia, and maintain upward pressure on price.
This report will be updated.