Oil And Gas Prices Essay

2603 words - 11 pages

Oil and Gas Prices
Steven Donaldson
COM 150
December 18, 2011
Lacey Thompson

Oil has been used for over four thousand years with the use of asphalt in Babylon for construction. In more modern times, the internal combustion engine has brought many new uses of oil. Oil is both bought and sold in many countries around the world, many countries consuming more than they produce. As the years went by, organizations such as OPEC, Organization of Petroleum Exporting Countries, were formed and have controlled the price of oil. When a drop in oil production starts to affect the ability to supply the demand, such as when Iraq invaded Iran, the prices of oil will rise. Because of the ...view middle of the document...

The revolution in Iran caused a production loss of two and a half million barrels of oil a day. The production of oil in Iran was soon back up to four million barrels a day shortly after the revolution. The effects of the loss of production on worldwide oil prices was limited and looked to be short lived. When Iraq invaded Iran in 1980 the production of the two countries combined went down to only a million barrels of oil a day, a loss of oil production by six and a half million barrels a day. "Over three decades later Iran's production is only two-thirds of the level reached under the government of Reza Pahlavi, the former Shah of Iran" (Williams, 1996-2011). Because of the loss of 10 percent of the worldwide oil production, oil went from $14 a barrel in 1978 to over $35 a barrel by 1981.
With oil prices almost three time what they were in 1973 after the invasion of Iran, new sources of oil were found to meet the demand and the price of oil declined from 1982 to 1999. The surging prices of oil between 1978 and 1981 caused consumers to react in many ways that caused crude oil prices to go down. New homes received better insulation, old homes were made better insulated, and industrial processes as well as automobiles became more energy efficient. These high prices for oil spawned new exploration for oil and non-OPEC production was up six million barrels of oil a day from 1980 to 1986. "The combination of lower consumption and higher OPEC production sent prices into a downward spiral" (Williams, 1996-2011). With a higher supply and a lower demand crude oil was less than $10 a barrel by mid-1986. The uncertainty with the invasion of Kuwait by Iraq in 1990 caused a small spike in the price of crude oil, but soon after the Gulf War oil prices steadily declined to reach a new low in 1994 since 1973. Thanks to the Asian Pacific region booming and a strong United States economy, oil consumption from 1990 to 1997 was up by over six million barrels a day. This increase in consumption and the reduction in Russian oil production of five million barrels a day, oil prices began to recover until 1998 when Asian consumption declined but oil production increased. By the middle of 1999, thanks to a cut in OPEC production, oil prices had recovered to $25 a barrel.

Just as oil prices were stabilizing at $25 a barrel after the production changes by OPEC, conflict around the world triggered oil prices into a gradual increase starting in 2000. Since the United States economy was growing and problems with Y2K were minimal, oil prices in 2000 saw a post 1981 high. In the wake of the terrorist attack on the United States in 2001 oil prices went in to a downward spike, but with production reductions oil prices were back to $25 a barrel by March 2002. By the end of 2002 OPEC production was restored, but the United States oil inventories were at a 20-year low and problems in Venezuela caused a strike at PDVSA, a state owned energy company in...

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