OIL PRICES 161
engineer standing with his left foot in a pail of boiling water and his
right foot in a pail of ice water and declaring that he is comfortable
because he is at average temperature.
In summary, the very long-term view of petroleum pricing can
be considered in the same way. Average prices, even when adjusted
for inflation, do not help the consumer who has to bear the brunt
of the price increases. But, that is only part of the story — the rest
follows.
6.1 Oil Price History
As the 20th century began, petroleum was being found, produced,
and wasted. In the United States, the oil-producing states had to
step into the production of petroleum to protect their resources.
The relatively short producing life and resultant failure of the
Spindletop field was one of the tragedies caused by a development
that was based on haste, perhaps even on greed through application of the I-want-it-now scenario and the resulting too-much-toosoon scenario.
As the industry progressed in the United States, changes were
necessary, and after World War II, the global nature of crude oil
changed the supply structure. Historically, crude oil prices have
varied from $2.50 to about $3.00 in 1957 to almost $150 per barrel
in the late summer of 2008. In the early part of this time period, the
oil-producing countries found increasing demand for their crude
oil but, as US demand increased and foreign supplies of petroleum
became available, prices were largely defined by what refineries,
usually owned by the larger oil companies, were willing to pay.
This system worked fine for refineries but not for the producers.
In 1972 the price of crude oil was about $3.00 per barrel, and
prior to October 1973, the world oil suppliers had very little say in
setting the oil prices — the oil importers (i.e., the oil companies) set
the prices. As a result of the Arab-Israeli war of 1973, oil became
the weapon of political pressure and the OPEC member nations
became assertive and organized; oil prices increased to $12 a barrel
in 1974. The United States went into a major economic recession
from 1981 to 1983 and the demand for oil was reduced and oilproducing nations kept pumping oil in competition to each other to
maximize cash inflow. As a result, oil prices decreased, and in 1985,
prices were again on the order of $13 — close to the price as in 1974.
engineer standing with his left foot in a pail of boiling water and his
right foot in a pail of ice water and declaring that he is comfortable
because he is at average temperature.
In summary, the very long-term view of petroleum pricing can
be considered in the same way. Average prices, even when adjusted
for inflation, do not help the consumer who has to bear the brunt
of the price increases. But, that is only part of the story — the rest
follows.
6.1 Oil Price History
As the 20th century began, petroleum was being found, produced,
and wasted. In the United States, the oil-producing states had to
step into the production of petroleum to protect their resources.
The relatively short producing life and resultant failure of the
Spindletop field was one of the tragedies caused by a development
that was based on haste, perhaps even on greed through application of the I-want-it-now scenario and the resulting too-much-toosoon scenario.
As the industry progressed in the United States, changes were
necessary, and after World War II, the global nature of crude oil
changed the supply structure. Historically, crude oil prices have
varied from $2.50 to about $3.00 in 1957 to almost $150 per barrel
in the late summer of 2008. In the early part of this time period, the
oil-producing countries found increasing demand for their crude
oil but, as US demand increased and foreign supplies of petroleum
became available, prices were largely defined by what refineries,
usually owned by the larger oil companies, were willing to pay.
This system worked fine for refineries but not for the producers.
In 1972 the price of crude oil was about $3.00 per barrel, and
prior to October 1973, the world oil suppliers had very little say in
setting the oil prices — the oil importers (i.e., the oil companies) set
the prices. As a result of the Arab-Israeli war of 1973, oil became
the weapon of political pressure and the OPEC member nations
became assertive and organized; oil prices increased to $12 a barrel
in 1974. The United States went into a major economic recession
from 1981 to 1983 and the demand for oil was reduced and oilproducing nations kept pumping oil in competition to each other to
maximize cash inflow. As a result, oil prices decreased, and in 1985,
prices were again on the order of $13 — close to the price as in 1974.