A History of Oil Prices
The prices of crude oil act as any other commodity in the world, with price swings occurring whenever there is a shortage or oversupply. The price cycle of crude oil can extend over a very long period of time depending on the ever-increasing demand for oil, as well as oil supply produced by the Organization of Petroleum Exporting Countries (OPEC), and non-OPEC oil supply companies.
The history of oil prices shows that the petroleum industry has been heavily regulated in terms of production and price control, especially in the United States, and throughout the duration of the 20th century, into the 21st.
Before WWII, there was an oversupply of crude oil. This was put to the test when oil was discovered in Texas in the 1930s, and the major oil companies were working together to keep the price up. WWII taught the government the importance of having a safe oil supply. In 1933, Americans paid almost $300,000 to Saudi Arabia’s King Ibn Saud for an oil concession.
Not realizing America would strike oil, the King quickly allowed Americans to settle the land, thinking he had only sold them sand. The British and other nations were intent that oil wasn’t there. After 5 years of dry drilling, Americans finally struck oil in Saudi Arabia. It was considered the biggest oil supply in the world.
After WWII, it became clear that the world was going to need more oil. Socal and Texaco were providing plenty, but this was a new era that demanded oil for countless applications. The U.S. government gave every incentive for more companies to enter Saudi Arabia, and Exxon, Chevron, and Mobil joined in the drilling.
This influx of drilling guaranteed that the Saudis would become rich, and the U.S. government promoted a new deal, splitting oil profits 50/50 between the companies drilling and exporting the oil. At the same time, the British set up shop in Iran, but failed to reach their 50/50 compromise. Eventually, Iran stole the oil trade back from the British, bringing on the rise of Nationalism in the Middle East.
After the British withdrew their police from the Middle East in 1971, a gaping hole was left. President Nixon promoted the Shah of Iran to fill the policing void, but the Arab Israeli War started in 1973 and the oil was used as an extortion method to squeeze the U.S. and the prices began to increase to a then all-time high.
Many people consider the 70s and below the glory time of the oil industry. The prices were fair and the supply was plentiful. The current price of crude oil is over $100 per barrel, leaving refined gasoline at over $4 per gallon. These prices hurt everyone on the purchasing end.
Economies have both flourished and collapsed due to the oil trade. Iran and Saudi Arabia were prominent countries, on the quick-rise to mega riches. Now, they’re a struggling, war-torn land that clings desperately to a dwindling oil supply. Oil is a major world commodity, and as long as it remains as such, wars will be fought and pockets will be emptied to seize control of the black gold.
Tags: crude oil, oil history, oil prices, opec
