This article is about the price of crude oil; see gasoline usage and pricing for information about derivative motor fuels.

Brent spot prices, May 1987 – August 2008.

Weekly reports on crude oil inventories or total stockpiles in storage facilities like these tanks have a strong bearing on oil prices.

The price of petroleum means the spot price of either WTI/Light Crude as traded on the New York Mercantile Exchange (NYMEX) for delivery in Cushing, Oklahoma, or of Brent as traded on the Intercontinental Exchange (ICE, into which the International Petroleum Exchange has been incorporated) for delivery at Sullom Voe. The price of a barrel of oil is highly dependent on both its grade, determined by factors such as its specific gravity or API and its sulphur content, and its location. The vast majority of oil is not traded on an exchange but on an over-the-counter basis, typically with reference to a marker crude oil grade that is typically quoted via pricing agencies such as Argus Media Ltd and Platts.^{citation needed} Other important benchmarks include Dubai, Tapis, and the OPEC basket. The Energy Information Administration (EIA) uses the Imported Refiner Acquisition Cost, the weighted average cost of all oil imported into the US, as its "world oil price".

The demand for oil is highly dependent on global macroeconomic conditions. Some economists say that high oil prices have a large negative impact on the global growth.

The Organization of the Petroleum Exporting Countries (OPEC) was formed to maintain the price of oil at a level most beneficial to its membership considered as a whole, and is considered to be a cartel by some observers. ^[1]

History

Main articles: 1967 Oil Embargo, 1973 oil crisis, 1979 energy crisis, 1980s oil glut, and Oil price increase of 1990

Long-term oil prices, 1861-2007 (orange line adjusted for inflation, blue not adjusted).

Recent price history

Main article: 2000s energy crisis

Price for West Texas Intermediate from 1999 to June 2008 in US$

A recent low point was reached in January 1999 of $16 (all prices are in US$ per barrel), after increased oil production from Iraq coincided with the Asian financial crisis, which reduced demand. Prices then increased rapidly, more than doubling by September 2000 to $35, then fell until the end of 2001 before steadily increasing, reaching $40-50 by September 2004. ^[2] In October 2004 light crude futures contracts on the NYMEX for November delivery exceeded $53 and for December delivery exceeded $55. Crude oil prices surged to a record high above $60 in June 2005, sustaining a rally built on strong demand for gasoline and diesel and on concerns about refiners' ability to keep up. This trend continued into early August 2005, as NYMEX crude oil futures contracts surged past $65 as consumers kept up the demand for gasoline despite its high price. Crude oil futures peaked at a close of over $77 in July 2006, and in December 2006 at about $63. That is just about where they began the year 2006.^[3] In September 2007, US crude (WTI) crossed $80. Multiple factors caused this high price. OPEC announced an output increase lower than expected.^[4] US stocks fell lower than experts predicted^[5], changes in federal oil policies ^[6], and six pipelines were attacked by a leftist group in Mexico. ^[7] In October 2007 US light crude rose above $90 for the first time, due to a combination of tensions in eastern Turkey and the reducing strength of the US dollar.^[8]

On January 2, 2008, a single trade was made at $100^[9], but the price did not stay above $100 until late February.

Oil prices for Brent in US$ and Euro

Oil broke through $110 on March 12, 2008^[10], $125 on May 9, 2008^[11], $130 on May 21, 2008 ^[12], $135 on May 22, 2008, $140 on June 26, 2008 and $145 on July 3, 2008^[13]. On July 11, 2008, oil prices rose to a new record of $147.27 following concern over recent Iranian missile tests^[14].

However, oil prices declined by more than $20 over the next two weeks, settling around $125 a barrel on July 24, 2008, ^[15]A strong contributor to this price decline was the drop in demand for oil in the US. Miles driven there in a month were down in March-May 2008 compared to 2007, with the 4% decline in May being the largest drop in history. ^[16] Oil further dropped down to its lowest price in 3 months, at around $112 a barrel, on August 11, 2008^[17], and on September 15, oil price fell below $100 for the first time in seven months.^[18]

Future

In recent years, the price of oil has increased exponentially.

World petroleum consumption increased over 25 million barrels per day between 1983 and 2006.

Fatih Birol, chief economist of the International Energy Agency said in October 2007 that oil prices will remain high for the foreseeable future due to rapid increases in demand from the rapidly growing economies of India and China.^[19] This does not quite align with the fact that prices started climbing in 2003, when no special event took place in either country, but when Iraq was invaded. Then prices doubled again between 2006 and 2008, this time due to speculation, when US trading was allowed to take place through the US-owned ICE Futures exchange in London rather than the NYMEX, thereby escaping US regulatory requirements. ^{[20] [21]} The ministers of OPEC, meeting in early December 2007, appeared to reach a consensus for high, but stable prices. This price point would deliver consistently high income to the oil producing states, but avoid prices so high that they would depress the economies of the oil consuming nations. A range of $70-80 was suggested by some analysts to be OPEC's goal.^[22] This would be in step with the price of shale oil, which, though more expensive to drill, will not likely go above $100. ^[19] The ministers of OPEC Major oil-exporting countries are rapidly developing and are using more oil domestically. Particularly significant are Indonesia, which no longer exports oil, Mexico and Iran, where projected demand will exceed production in about five years, and Russia, which is growing rapidly.^[23]

Russian energy giant Gazprom meanwhile forecast that soaring oil prices would "very soon" hit 250 dollars a barrel.^{citation needed} OPEC's president predicted prices might reach $170 by the summer of 2008.^[24][25] Neither prediction came true.

Market listings

Main article: Commodities markets

Oil is marketed among other products in commodities markets. See above for details. Widely traded oil futures, and related natural gas futures, include:^[26]

• PETROLEUM
  • Nymex Crude Future
  • Dated Brent Spot
  • WTI Cushing Spot
  • Nymex Heating Oil Future
  • Nymex RBOB Gasoline Future
• NATURAL GAS
  • Nymex Henry Hub Future
  • Henry Hub Spot
  • New York City Gate Spot

Speculation

The surge in oil prices in the past several years has led some experts to argue that at least some of the rise is due to speculation in the futures markets.^[21][20] This has led to an investigation, which reached an interim conclusion that speculation was largely not responsible for the rise. Economist James K. Galbraith believes that much of the rise is due to the "Enron loophole" drafted in a rider by former Texas senator Phil Gramm, which allowed energy futures to avoid CFTC oversight. Galbraith cites Masters, a hedge fund manager, who observes that index speculation tied to commodities by pension funds and other investment vehicles has risen from $13 billion in 2003 to $250 billion in 2008. Galbraith observes that with Goldman Sachs predicting a rise in the price to $200 and Gazprom $250, suppliers may react to the rise by restricting supply until they can sell their product at a higher price.^[27]

Futures investigation

The U.S. Commodity Futures Trading Commission announced "Multiple Energy Market Initiatives" on May 29, 2008. Part 1 is "Expanded International Surveillance Information for Crude Oil Trading." The CFTC announcement stated it has joined with the United Kingdom Financial Services Authority and ICE Futures Europe in order to expand surveillance and information sharing of various futures contracts.^[28] This announcement has received wide coverage in the financial press, with speculation about oil futures price manipulation.^{[29] [30] [31]}

The interim report by the Interagency Task Force, released in July, found that speculation had not caused significant changes in oil prices and that fundamental supply and demand factors provide the best explanation for the crude oil price increases. The report found that the primary reason for the price increases was that the world economy had expanded at its fastest pace in decades, resulting in substantial increases in the demand for oil, while the oil production grew sluggishly, compounded by production shortfalls in oil-exporting countries. The report stated that as a result of the imbalance and low price elasticity, very large price increases occurred as the market attempted to balance scarce supply against growing demand, particularly in the last three years. The report forecast that this imbalance would persist in the future, leading to continued upward pressure on oil prices, and that large or rapid movements in oil prices are likely to occur even in the absence of activity by speculators. The task force was continuing to analyze commodity markets and intended to issue further findings later in the year.

References

• Skyrocketing oil prices pummel U.S. national security.

See also

• Chronology of world oil market events (1970-2005)
• Asymmetric price transmission
• Elasticity (economics)
• Energy crisis
• Energy efficiency
• Food vs fuel
• Gasoline usage and pricing
• Peak oil
• Stagflation

External links

• Gasoline and diesel fuel prices, EIA, Department of Energy.
• Oil-price.net, daily crude prices.
• FACTBOX-The World's Oil Shocks (Planet Ark)
• NYMEX future prices for light sweet crude, Session Overview.
• NYMEX future prices for light sweet crude, Session Expanded table.
• "It's Still About Oil," by Michael Johns, April 30, 2007.
• History and Analysis of Crude Oil Prices.
• Oil Change International
• Historical Analysis of Oil Price in Dollars and Euro (at historical rate)