rate and you easily approach 5 - 5. 5 billion barrels per annum which is not far off the 2004 production of the whole of the north american continent - getting on towards 20 % of world production. so on the demand side there is clearly a challenge. there is also great complexity in assessing the evolution of supply. the supply and price of crude is complicated by opec politics, and the length of time that it will take to get non - opec production such as canada ’ s tar sands significantly on stream. and due to under - investment there is evidence of bottlenecks in the refinery arena which will take time to be rectified. so supply constraints too are for the time being a real possibility. the november 2005 inflation report explained that the oil futures curve indicated in early november that the oil spot price would remain around current levels for the next few years. however, there was considerable uncertainty around this. the report cited illustrative estimates that market participants thought there was a one in four chance that oil prices would be $ 10 per barrel higher or lower in six months time. this is a significant increase from february 2004, when the probability of such a change was thought to be less than one in fifty [ chart 2 ]. chart 2 : market beliefs about oil prices six months ahead ( a ) source : bank of england, november 2005 inflation report this shows that although the central case has oil prices essentially flat over the forecast horizon there is still a possibility we will see prices above those of today at some date, with corresponding significance for monetary policy. in the uk it is difficult to say with certainty what proportion of the last year ’ s rise in cpi inflation ( that is from 1. 1 % in september 2004 to 2. 5 % in september 2005 ) was due to oil. but estimates suggest that up to around half the pick up can be explained by oil. the key issue for me is the possible impact of oil prices on inflation expectations. any signs of expectations becoming dislodged would be a signal that policy might need to be tighter than otherwise, in order to provide insurance that expectations remain on track. i will revert to this theme later. over recent years long term inflation expectations have remained anchored close to the target level. this is important in delivering price stability : the fact that people think the mpc will be successful in sticking to the target conditions their behaviour in a number of ways. higher prices for oil products, and indirectly other goods and services, leaves less di

not be equity support. likewise, in pricing out break - up risk in sovereign debt securities, we cannot and do not want to subsidise governments. placing the ecb ’ s monetary policy in the broader context of central bank non - standard measures let me briefly digress to put our monetary policy and its impact on borrowing conditions in the context of unconventional monetary policies deployed by central banks more generally. to begin with, the remuneration that investors demand on a long - dated security should be at least as large as the expected return from a strategy of rolling over short - term instruments and the risk premia that investors demand over and above the return from the rolling over strategy. premia, in turn, are a composite object. they compensate investors for different risks attached to term investments : • the term risk premium for holding on to an asset for a specific period of time ; • the liquidity risk premium as the compensation for the possibility of incurring losses when selling the asset back to the market before maturity and at short notice ; and • credit risk premia of various types as compensation for the possibility of not receiving at maturity repayment for the principal because, for instance, borrowers may renege on their contractual obligations. at the risk of oversimplifying, one can distinguish the main types of unconventional measures depending on which component in this decomposition they are aiming to address. forward guidance about the intended path of the central bank ’ s monetary policy rate in the future mainly aims to manage expectations regarding the future evolution of the short - term interest rates. it thus addresses the expectations component i was referring to before. changes in the level of the current policy rate always have an intrinsic signalling content with respect to possible changes for short - term rates in the future. but during crisis times, when short - term nominal rates are at zero or close to zero, they cannot be adjusted further down. the central bank may then engage in active communication reassuring markets that the future path of policy rates would not deviate from the current low level for a certain period or until certain observable conditions are verified. bis central bankers ’ speeches large - scale asset purchases, or quantitative easing, instead, mainly aim to compress the term premium. 2 this type of policy intervention works through reducing the supply of securities with long duration and increasing the supply of reserves or liquidity. with less term risk to hold in the aggregate, the market should require a lower premium to hold that risk. the ecb ’