History and Analysis -Crude Oil Prices
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The decline in the price
of crude when adjusted for inflation was amplified for the
international
producer in 1971 and 1972 by the weakness of the US dollar.
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OPEC was formed in 1960 with five
founding
members Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.
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By the
end
of 1971 six other nations had joined the group: Qatar, Indonesia,
Libya,
United Arab Emirates, Algeria and Nigeria.
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f there was any doubt that the
ability
to control crude oil prices had passed from the United States to OPEC
it
was removed during the Arab Oil Embargo. The extreme sensitivity
of prices to supply shortages became all too apparent when prices
increased
400 percent in six short months.
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From 1974 to 1978 world crude oil
prices
were relatively flat ranging from $12.21 per barrel to $13.55 per
barrel.
When adjusted for inflation the price over that period of time world
oil prices were in a period of moderate decline.
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Events in Iran and Iraq led to
another
round of crude oil price increases in 1979 and 1980. The Iranian
revolution
resulted in the loss of 2 to 2.5 million barrels per day of oil production between
November, 1978 and June, 1979. At one point production almost
halted.
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The combination of the Iranian
revolution
and the Iraq-Iran War cause crude oil prices to more than double
increasing from
from
$14 in 1978 to $35 per barrel in 1981.
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The rapid increase in crude
prices from
1973 to 1981 would have been much less were it not for United States
energy
policy during the post Embargo period.
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The only enforcement mechanism that has ever
existed in
OPEC was Saudi spare capacity.
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During the 1979-1980 period of rapidly increasing
prices, Saudi Arabia's oil minister Ahmed Yamani repeatedly warned
other
members of OPEC that high prices would lead to a reduction in demand.
His
warnings fell on deaf ears.
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Surging prices caused several
reactions
among consumers: better insulation in new homes, increased insulation
in
many older homes, more energy efficiency in industrial processes, and
automobiles
with higher efficiency. These factors along with a global recession
caused
a reduction in demand which led to falling crude prices.
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Crude oil prices plummeted below $10 per barrel by
mid-1986. Despite the fall in prices Saudi revenue remained about the
same with higher volumes compensating for lower prices.
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between early 1998 and the middle of 1999 OPEC production
dropped by about 3 million barrels per day and was sufficient to move
prices above $25 per barrel.
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Other major factors contributing to the current level of
prices include a weak dollar and the continued rapid growth in Asian
economies and their petroleum consumption. The 2005 hurricanes
and
U.S. refinery problems associated with the conversion from MTBE as an
additive to ethanol have contributed to higher prices.
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Public Comment
on 2006-07-18 by panhad