The price of oil - in context
CBC News Online | April 18, 2006
Oil is sold in barrels - it's the same unit of measure used to sell whisky. A barrel of oil - or whisky - contains 159 litres.
The price of a barrel of oil has been testing new highs since it pushed through $50 a barrel in September 2004 - and pushed gasoline prices well beyond $1 a litre in the summer of 2005. But how high are prices like that, historically speaking? Turns out these records may not be records, after all.
Oil prices were stable for most of the 100 years before 1973 at well under $5 a barrel. Expressed in today's dollars (all figures in U.S. dollars), the price was closer to $10 a barrel, hitting highs of about $15 and lows close to $8. Even as the world economy boomed in the decades following the Second World War, prices remained fairly stable. That's mainly because the United States held most of the clout in the oil industry - and the U.S. government regulated the price of oil.
From 1958 to 1970, prices were stable at about $3 per barrel, but in real terms the price of crude oil declined from above $15 to below $12 per barrel. The decline in the price of crude when adjusted for inflation was further exacerbated in 1971 and 1972 by the weakness of the U.S. dollar.
But by the early 1970s, that changed. The Organization of Petroleum Exporting Countries had become a force and in 1973, the first major oil shock hit the world as Arab nations refused to sell to countries that had expressed support for Israel in the Arab-Israeli war of October 1973.
Within a few months, the price of oil went from around $3 a barrel to about $12. That sounds like a bargain, compared with just over $70 in April 2006. But expressed in today's dollars, the price went from around $10 a barrel to $40 a barrel. That's a huge increase and the impact on the global economy was devastating.
And prices didn't retreat from that level. By 1979, the world was in for another oil shock as unrest in Iran led to the toppling of the Shah - a friend of the West - and the rule of the ayatollahs.
Oil went from a little less than $15 a barrel to around $35. In today's dollars, that's like boosting the price of oil from about $40 a barrel to $80.
Over the next few years, the price of oil crashed. OPEC continued to pump out oil while underestimating the severity of the recession and the resulting collapse in demand. Oil prices dived to just over $20 a barrel in today's dollars.
The price fluctuated through a fairly narrow band, spiking again at $30 a barrel when Iraq invaded Kuwait in 1990. But after the first Gulf War, the price again headed south, hitting a low of close to $10 a barrel in the late 1990s. Since then, the price has been going up steadily, except for a brief dip after the U.S. toppled Saddam Hussein and created the expectation that the war in Iraq would be brief. The only time the price of oil has been higher - as expressed in today's dollars - was in 1980 during the Iran hostage crisis, when it jumped to US $80 per barrel.
With much of the world's oil lying under territory prone to unrest, there have been predictions that $100-a-barrel oil may be around the corner. Some economists are predicting that the world's economy might not feel much of a pinch until oil breaks that barrier. Strong growth continued as oil surged past $50 and $60 a barrel - and on towards $70.