Oil prices have always been subject to huge change. Fuel forecourt prices have historically fluctuated in a way that the produce in the supermarket next door has not, because oil prices have always gone up and down depending on what is going on in the industry – and indeed the world – at the time.
Here is a brief history of oil prices and how they have been affected by events in the past:
The world’s first commercial oil refinery dates from 1837, when a paraffin plant was established in Baku, Azerbaijan. A 21-metre-deep oil well was then created in 1846, when one Baku oil field still produced over 90% of the world’s oil. A series of commercial oil wells followed in Poland, Romania, Canada and Pennsylvania, USA. Pennsylvania won the “black gold” rush, and within just a few short years the state contributed almost half of the world’s oil. At this point prices rose steeply; oil that cost 49 cents per barrel in 1861 had risen to $6.59 by 1865.
The turn of the century
In 1870, Ohio’s Standard Oil Company was incorporated by John D Rockefeller and the company soon dominated the market, driving prices down. Standard Oil expanded (partly by buying up competitors) and began to export its products.
After 1900, many of today’s major oil companies were established. Texaco, Gulf Oil, Shell and Royal Dutch, BP, Chevron, Mobil and Exxon were referred to as the “seven sisters”, with control of over 85% of the world’s oil during the early 1970s.
World War II
More oil was discovered in the 1920s and 1930s, and the Texas discovery during the Great Depression halved oil prices. What cost $1.19 in 1930 had fallen to $0.65 by 1931, but intervention soon curbed supply and prices stabilised. World War II then sparked an increase in demand during the 1940s, but there was less impact on prices because of plentiful supply. One lasting effect was to make clear the importance of government control over oil reserves, which then affected policy and prices over the following decades.
The post-War period
Government policy and the laws of supply and demand defined oil markets after World War II. Many governments wanted to nationalise production, and until the early 1970s the US and USSR dominated. At this time, the UK and Norway discovered oil fields in the North Sea, and this “Brent Crude” oil is still used in setting prices.
The start of the 1990 Gulf War caused prices to rise from $14.98 a barrel to $41.00 by September 1991. The next few years saw much fluctuation, due to the fall of the Soviet Union in 1991 and the Asian financial crisis of 1997.
2000 and on
The 2003 invasion of Iraq caused oil market uncertainty. Asian demand also increased, causing a price rise from $28.38 in mid-2000 to $146.02 by mid-2008. Oil prices then fell and rose because of the worldwide financial crisis. In recent times, fracking for shale oil has caused prices to fall, but production cuts soon followed, which led to another rise.
Now, the COVID-19 crisis is likely to impact upon oil prices for some time. Whether this is a matter of months or years remains to be seen.