World sugar prices experienced considerable volatility over the course of 2005-06, reaching a 25-year high in early 2006. Having strengthened since 2003, world prices surged in late 2005 and early 2006 under the pressure of tight global supplies and growing linkages between international sugar and oil prices, and then fell back again later in the year. As the deficit in the global sugar balance contracted throughout the remainder of 2006, world prices steadily declined. For 2006-07, the global sugar balance has moved strongly into surplus as production in both exporting and importing countries responded to higher world sugar prices in the previous marketing year. World raw sugar prices are projected to decline by nearly 27% to average around USD 11.5 cents/lb (USD 253.5/t) in 2006-07, due to abundant supplies, higher stocks and an emerging global surplus. The white sugar margin remained firm at the end of 2006 due to tighter supplies, following the withdrawal of large quantities of high quality white sugar exports from the world market with reform of the European Union sugar regime. As a consequence, white sugar prices are expected to fall in 2006-07, but at a slower pace than for raw sugar, due to delays in filling the gap in supplies left by the retraction of the EU from the world market.