weather-related damage and disruptions, competing fuel prices, and regional supply interruptions or fears thereof that may be caused by military conflicts, civil unrest or political uncertainty. Any of these factors could also inhibit the company’s production capacity in an affected region. The company closely monitors developments in the countries in which it operates and holds investments, and seeks to manage risks in operating its facilities and businesses. The longer-term trend in earnings for the upstream segment is also a function of other factors, including the company’s ability to find or acquire and efficiently produce crude oil and natural gas, changes in fiscal terms of contracts, and changes in tax laws and regulations.

The company continues to actively manage its schedule of work, contracting, procurement and supply-chain activities to effectively manage costs. However, price levels for capital and exploratory costs and operating expenses associated with the production of crude oil and natural gas can be subject to external factors beyond the company’s control including, among other things, the general level of inflation, commodity prices and prices charged by the industry’s material and service providers, which can be affected by the volatility of the industry’s own supply-and-demand conditions for such materials and services. In recent years, Chevron and the oil and gas industry generally experienced an increase in certain costs that exceeded the general trend of inflation in many areas of the world. As a result of the decline in prices of crude oil and other commodities in 2014, these cost pressures are beginning to soften. Capital and exploratory expenditures and operating expenses can also be affected by damage to production facilities caused by severe weather or civil unrest.

The chart above shows the trend in benchmark prices for Brent crude oil, West Texas Intermediate (WTI) crude oil and U.S. Henry Hub natural gas. The Brent price averaged $99 per barrel for the full-year 2014, compared to $109 in 2013. As of mid-February 2015, the Brent price was $60 per barrel. The majority of the company’s equity crude production is priced based on the Brent benchmark. While geopolitical tensions and supply disruptions supported crude prices through mid-year, crude prices have since been in decline, as signs of crude oil over-supply emerged during the second half of the year due to continued robust non-OPEC supply growth, concern over softness in the global economic recovery, and material easing of geopolitical tensions and supply disruptions. Downward pressure on crude pricing has been further magnified by OPEC’s decision in November 2014 to maintain the current production ceiling of 30 million barrels per day despite evidence of market surplus.

The WTI price averaged $93 per barrel for the full-year 2014, compared to $98 in 2013. As of mid-February 2015, the WTI price was $53 per barrel. WTI traded at a discount to Brent throughout 2014 due to high inventories and excess crude supply in the U.S. market.

A differential in crude oil prices exists between high-quality (high-gravity, low-sulfur) crudes and those of lower quality