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The Complete History of Oil Markets



Like most other commodities in the markets, crude oil prices have routinely experienced wild price fluctuations alternating between times of high scarcity, high demand and high prices and periods of supply, low demand and depressed prices. These so-called crude oil "price cycles" tend to last for several years, depending on variables such as oil demand, volume of oil drilled, processed and sold by the largest producers.

Since the first days of commercial production in Baku, Azerbaijan, these price fluctuations have been triggered by economic and political events, technological advances and changes in the petroleum industry, and continue to affect prices today.

Crude Oil Price History: 1

861-Present

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 Legend

1800-1869: Early Black Gold Rush

The modern oil industry traces its roots to Baku where the first commercial refinery was established in 1837 to distill oil for heating and lighting kerosene

The first modern oil well was lowered in Baku in 1846 to a depth of 21 meters, the only oil field accounting for more than 90% of global production, and most of the oil found its way to Persia (today's Iran).

Several commercial oil wells soon followed:

– Poland – 1854 [19659002] – Bucharest, Romania – 1857

– Ontario, Canada – 1858

– Pennsylvania, USA – 1859

Pennsylvania was the epicenter of the first black gold rush, and produced almost 50% of the world's oil. Prices quickly shot up from $ 0.49 per barrel in 1861 to $ 6.59 per barrel in 1865, representing a massive rise of 1,245% in just four years.

1870-1913: The auto revolution

While some economists claim that the modern oil industry only accelerated after World War II with the creation of the Marshall Plan – part of which was a deal on a free board price for all players – others claim that the incorporation of Standard Oil Co by John D Rockefeller in 1870 in Ohio was the real launch pad for the industry. Related: EIA Sharply Cuts Oil Price Forecast

Standard Oil rose rapidly to prominence over the next two decades, driving down prices and buying up competition. The company was so successful that it controlled nearly 90% of refined oil in the United States by 1890. As production continued to expand in both the United States and Russia, global oil prices fell from an average of $ 2.56 per barrel in 1876 to just $ 0. , 56 in 1892. This was further accelerated by the launch of the first commercial cars in Germany and the United States in 1896, a technological revolution that would bring unprecedented growth for the industry.

1901-1911: Rise of the oil majorors

Many of the modern oil majors can trace their origins to the early 20th century.

– The discovery of oil in Spindletop, Texas, led to the establishment of Texaco and Gulf Oil in 1901

– Increased competitive pressure led to Shell and Royal Dutch merging in 1907 to form Royal Dutch / Shell

– BP , formerly known as the Anglo-Persian Oil Company, was incorporated in 1908 following the discovery of oil in Iran

– Chevron, Exxon and Mobil (now Exxon Mobil) ca I left it in 1911 after the split of Standard Oil Co following an antitrust- Order of the United States Supreme Court

The seven oil targets controlled 85% of the world's oil reserves during their golden years in the 1970s.

1914-1949: Oil discoveries, wars, crises

The discovery of oil in Cushing, Oklahoma, in 1912 is considered an important milestone for the US oil industry because the region grew to become one of the most important oil fields in the country. In particular, it was also the settlement point for the West Texas Intermediate (WTI) oil price, a leading global benchmark for oil prices.

The next four and a half decades were a turbulent period marked by a series of major wars and economic crises, all of which would have an important impact on oil prices.

First was WWI (1914-1918), which pushed global demand for oil more than doubled the price of oil from $ 0.81 per barrel in 1914 to $ 1.98 at the end of the war. Demand continued to grow even after the war ended, mainly driven by the ever-increasing popularity of the car and a gas shortage in the US west coast. First, prices rose to $ 3.07 per barrel before retiring and stabilized around $ 1.61 as production increased.

Around this time, oil companies began to explore other uses of the commodity, including commercial production of plastics. However, prices remained relatively low despite the additional demand created by these applications, mainly due to a combination of fierce competition and ample supply. Meanwhile, the largest oil finds elsewhere continued to keep markets awake with the commodity including Venezuela, Iraq, the USSR, Kuwait, Saudi Arabia and the Gulf of Mexico.

The discovery of oil in East Texas in 1930 was one of the major highlights of this period because it helped create an oil plane that coincided with the Great Depression, which consequently depressed prices from $ 1.19 in 1930 to $ 0.65 in 1931. It took the intervention of the Texas Railroad Commission, which forced production quotas to stabilize prices and prevent further declines.

Just like WWI, the beginning of World War II in 1939 also helped to get demand and goose prices. However, the impact was less pronounced this time due to ample global supply. Nevertheless, the war governments made urgent attention to the need to control the reserves, and it will clearly appear in their actions over the next few decades.

1950-2003: Struggle to control production

The end of the Second World War would usher in a period in which many countries made a concerted effort to swing global oil production, with several governments nationalizing oil infrastructure.

Between 1950 and 1960, Iran, Indonesia and Saudi Arabia all partially nationalized their oil industry. The Suez crisis of 1956-57 caused Egypt to seize the Suez Canal through which almost five percent of the world's oil flowed through.

However, it was the United States and the USSR that would emerge as the biggest heavyweights in terms of production control. In the late 1950s, the Soviet Union began to flood the market with cheap oil, leading to price cuts from the main years in an attempt to remain competitive. In response to these developments, Saudi Arabia, Iran, Iraq, Kuwait and Venezuela joined forces to form OPEC as a means to lower competition between their countries, and also as a means to have greater impact on supply control.

OPEC continued to expand its membership over the next two decades with the UAE, Libya, Indonesia, Qatar, Nigeria, Algeria, Gabon and Ecuador to join the organization. Between 1960 and 1976 most of these countries took control of their oil reserves by buying out or forcibly taking shares from the oil years.

The United States and the USSR continued to shed weight, but soon the influence of OPEC shifted. In 1973, OPEC members embargoed countries supporting Israel in the Yom Kippur War. Consequently, oil prices shot up to levels never seen before, from $ 2.48 per barrel in 1972 to $ 11.58 in 1974 and even higher in parts of the United States. Related: Is the US Gas Boom Already Over?

It was around this time when oil was discovered in the North Sea in a region controlled by the United Kingdom and Norway. Oil from this area is referred to as Brent crude and is used in conjunction with WTI to calculate prices.

Iran cut production sharply during the Iranian revolution (1970-1980) and also during the Iran-Iraq war 1980-1988 which led to a rise in prices to $ 36.83. However, prices fell again due to demand shocks and increased output from the Soviet Union, which became the world's largest producer in 1988. Iraq invaded Kuwait in 1990, leading to the Gulf War. This created a major supply shock, which led to prices jumping from $ 14.98 per barrel before the war to $ 41.00 in September 1991.

The 1990s witnessed wild price fluctuations. The Soviet Union collapsed in 1991, precipitating the collapse of the Russian oil sector with production halved over the next decade, mainly due to reduced investment. However, global demand also dropped in 1997 due to the Asian financial crisis, but managed to recover at the turn of the century as the region's economic outlook improved.

2003 – Today: Hydraulic fracturing and a changing landscape

This next decade witnessed some of the most spectacular oil price explosions.

The United States invaded Iraq in 2003, leading to supply uncertainties. This was further boosted by massive demand growth from Asia and China. Consequently, prices jumped from $ 28.38 per barrel in July 2000 to $ 146.02 in July 2008.

From there, prices fell due to the global financial crisis in 2008 before staging a comeback. The Arab Spring of 2011 created a shortage of supply and helped push prices to $ 126.48 per barrel.

Recent technological advances have significantly changed the global oil landscape. Hydraulic failure has pushed the US to the top of the pack again, reducing the impact of OPEC and depressing prices. Flooding of the US slate market has led to a sharp fall in global oil prices, from $ 114.84 per barrel in June 2014 to $ 28.47 in January 2016. OPEC has sought to improve glut by merging with non- OPEC countries such as Russia to carry out production cuts. Consequently, prices have come back somewhat, but have never approached levels in the last decade.

Now that the United States acts as the new "swing manufacturer," OPEC's influence and ability to control prices will remain diminished. The unresolved US-China trade war as well as geopolitical uncertainty in Iran, Syria and other countries have contributed to goose prices from below $ 30 per barrel to $ 54.70 in October 2019. But with still high levels of shale production and a weakening of the world economy , prices are expected to be subdued with prices estimated at an average of $ 66 per barrel in 2019 and $ 65 per barrel in 2020.

By Alex Kimani for Oilprice.com

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