A review of historical oil prices shows that oil displays wide price swings when markets suffer from scarcity or oversupply. The price cycle of crude oil ranges from a small duration to several years.
Major Events: Historical Oil Prices
From 1948 to 1970, oil prices remained stable at around $3 per barrel. A major development was the formation of OPEC in 1960; consisting of Iraq, Iran, Saudi Arabia, Kuwait and Venezuela.
- Oil Crisis (1973-1978)
Oil prices quadrupled from $3 in 1972 to $12 in the later half of 1974. This was triggered by the Yom Kippur War, when Israel was attacked by Egypt and Syria. The US and some other Western countries supported Israel. Infuriated Arab nations imposed an embargo on these countries by curtailing oil production by 5 million barrels per day. The control on oil prices shifted from the US to the OPEC nations during the ‘Arab Oil Embargo.’
- Oil Crisis (1979-1980)
In 1979, the Iranian revolution sent oil prices soaring. The country’s oil production plummeted drastically to 2.5 million barrels a day. The 1980 Iraqi invasion worsened the situation. The combined production of both the countries reduced to just one million barrels per day (from 6.5 million barrels in 1978). This lowered the global oil production by 10% and oil prices rocketed to $35 per barrel.
- Oil Glut (1980-1986)
The energy crises of the 1970s slowed down the economic activity across the industrial nations. This resulted in oil conservation and overproduction, pulling down consumption and prices of crude oil drastically. The import of oil by the US reduced from 46.5% in 1977 to 28% in 1982-1983. Oil prices which had peaked to $35 in 1980 fell to $10 within six years.
- Oil Spike (2003-2008)
Inflation-adjusted oil prices post-Gulf War remained below $25. However, oil prices began escalating in 2003 due to:
- Dwindling petroleum reserves and ‘peak oil’ concerns,
- Tensions in the Middle-East and
- Oil-price speculation.
Oil price crossed $30 in 2003 and reached $60 in August 2005. Oil price reached a historic high of $147.30 in July, 2008 amidst global economic recession.
An analysis of historical oil prices exhibits that oil price determination is no longer solely dependant on the OPEC countries.