Oil is one of the most strategic resources in the world. Main source of energy for essential sectors of activity such as transport or industry, black gold directly or indirectly impacts the production costs of most goods and services. Any fluctuation in the price of a barrel of oil therefore has significant consequences for the economy.
Over the last century, the curve of the price of a barrel of oil has touched peaks before sinking into the abyss, then recovering many times. Let's try to see more clearly about the factors behind these upheavals by exploring in particular some of the most significant events in its history.
Determining factors for the price of a barrel of oil
To better understand the oil market, it is essential to focus on the factors likely to disrupt the balance of supply and demand for barrels.
Gathered within the Organization of the Petroleum Exporting Countries (OPEC) and OPEC+ (which also includes other producing countries such as Russia, Mexico or Kazakhstan), the oil powers are able to regulate the oil supply.
But other more unexpected factors can also strongly affect world oil production capacities! Conflicts and economic sanctions are indeed among the elements capable of destabilizing oil-producing countries.
That's not all. Since the price of a barrel of oil is traded in US dollars (USD) on world markets, each variation in the greenback more or less directly influences the price of black gold.
Finally, the price of a barrel of oil is also influenced by consumer demand and the dynamism of the world economy. The latter is therefore particularly sensitive to economic conditions.
So many endogenous and exogenous factors that have rattled the prices of black gold over the last century to the rhythm of crises and oil recoveries!
Here are some of the most significant historical examples.
First oil shock in history (1973)
In the 1970s, industrialized countries depended heavily on imported oil, mainly from the Middle East.
Between 1970 and 1973, oil prices increased by 100%, as oil-producing countries gradually became aware of their position of strength.
Following the Yom Kippur War in 1973, the Gulf countries reduced their production and Saudi Arabia even imposed an embargo on exports to the United States.
The price of a barrel of oil exploded, going from $4 to $16 in just a few weeks!
Western economies are destabilized, growth slows and unemployment rises, marking the beginning of the first oil shock.
Second Oil Shock (1979)
6 years later, history is repeating itself.
The Iranian revolution disrupts oil exports due to strikes and political instability, then the war between Iran and Iraq comes to permanently destabilize oil exports from the region.
These events lead to a significant rise in oil prices with prices rising from $20 to $40. Shortages and economic difficulties then multiplied for importing countries, caught off guard by soaring prices.
Vertiginous fall in the price of a barrel of oil in 1986
After many years of high prices, oil fell sharply and fell from $25 a barrel at the end of 1985 to less than $10 in mid-1986. A historical evolution of the price of a barrel of oil often qualified as an “oil counter-shock” by economists.
In the 1980s, OPEC set official oil prices with Saudi light crude as the benchmark. High prices and the global recession have driven down consumption, spurring the search for alternative energy sources and a growing quest for energy efficiency.
OPEC members therefore cut their production by almost half. To regain market share, Saudi Arabia is rapidly increasing its production and adopting a spot price system.
2008 financial crisis, the third oil shock
Caused by the collapse of the US mortgage market, the subprime mortgage crisis led to a global recession. Oil prices collapsed with a fall of more than 70% in the second half of 2008.
While prices peaked at more than $146 in July 2008, they dropped towards $39 in December 2008 before rising sharply over the following two years and reaching a new peak around $113 a barrel.
Coronavirus pandemic in 2020: sharp brake on the price!
The coronavirus pandemic in 2020 leads to a sharp drop in oil prices due to the sudden drop in global demand caused by containment measures.
Among consequences of the coronavirus crisis, the decrease in overall economic activity leads to a decrease in energy consumption. Producing countries then try to reduce their production to stabilize prices.
The price of a barrel of oil lost around 70% between January and April 2020, going from one barrel at more than $60 to one barrel at less than $20.
2022 Russian invasion of Ukraine
At the beginning of the Russian military operation to invade Ukraine in February 2022, the price of oil rises sharply due to the disruption in the supply of oil from Russia.
Oil goes from just over $88 per barrel in early February 2022 to over $123 per barrel in June 2022, an increase of more than 40%.
Since that peak, the oil market has slumped back to levels similar to those seen prior to Russia's invasion of Ukraine. Oil prices have lost almost 80% since this peak and are now hovering around $75 a barrel.
From the days of the oil shocks to the recent war in Ukraine, the price of oil has experienced significant price increases and decreases.
Given the strategic importance of oil as a source of energy and its impact on the world economy, analysts like to follow closely the news likely to affect the price of a barrel on world markets.
For both professionals and individuals, knowing the historical evolution of oil prices is essential to understanding current trends and trying to predict future variations.