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. Capital and exploratory expenditures and operating expenses also can be affected by damage to production facilities caused by severe weather or civil unrest.

     The chart at left shows the trend in benchmark prices for West Texas Intermediate (WTI) crude oil and U.S. Henry Hub natural gas. Industry price levels for crude oil continued to be volatile during 2009, with prices for WTI ranging from $34 to $81 per barrel. The WTI price averaged $62 per barrel for the full-year 2009, compared to $100 in 2008. The decline in prices from 2008 was largely associated with a weakening in global economic conditions and a reduction in the demand for crude oil and petroleum products. As of mid-February 2010, the WTI price was about $77.

     A differential in crude-oil prices exists between high-quality (high-gravity, low-sulfur) crudes and those of lower-quality  (low-gravity, high-sulfur). The amount of the differential in any period is associated with the supply of heavy crude available versus the demand that is a function of the number of refineries that are able to process this lower-quality feedstock into light products (motor gasoline, jet fuel, aviation gasoline and diesel fuel). The differential remained narrow through 2009 as production declines in the industry have been mainly for lower-quality crudes.

     Chevron produces or shares in the production of heavy crude oil in California, Chad, Indonesia, the Partitioned Zone between Saudi Arabia and Kuwait, Venezuela and in certain fields in Angola, China and the United Kingdom sector of the North Sea. (See page FS-10 for the company’s average U.S. and international crude-oil realizations.)

     In contrast to price movements in the global market for crude oil, price changes for natural gas in many regional markets are more closely aligned with supply-and-demand conditions in those markets. In the United States, prices at Henry Hub averaged about $3.80 per thousand cubic feet (MCF) during 2009, compared with almost $9 during 2008. At December 31, 2009, and as of 

mid-February 2010, the Henry Hub spot price was about $5.70 and $5.50 per MCF, respectively. Fluctuations in the price for natural gas in the United States are closely associated with customer demand relative to the volumes produced in North America and the level of inventory in underground storage. Weaker U.S. demand in 2009 was associated with the economic slowdown.

     Certain international natural-gas markets in which the company operates have different supply, demand and regulatory circumstances, which historically have resulted in lower average sales prices for the company’s production of natural gas in these locations. Chevron continues to invest in long-term projects in these locations to install infrastructure to produce and liquefy natural gas for transport by tanker to other markets where greater demand results in higher prices. International natural-gas realizations averaged about $4.00 per MCF during 2009, compared with about $5.20 per MCF during 2008. Unlike