Few commodities have shaped the modern world quite like oil. The ebbs and flows of this black gold have influenced geopolitics, sparked economic booms and recessions, and transformed entire countries. We explore the dramatic history of oil price movements starting from the late 1970s, discuss price crashes of the 1980s and 2014, consider the impact of economic activity, and review the unprecedented market dynamics of recent years.
Crude Oil Price History in a Chart
The best way to visualize the volatility of oil prices is to show their historical behaviour in a chart.
The oil price is very dynamic as it can quickly double or triple, then suddenly collapse back to previous lows. As oil is essential for the world economy, its price usually increases during economic expansion and decreases during recessionary periods. However, there is much more behind the curtain affecting the oil price dynamics, ranging from market competition, supply and demand, and geopolitics.
Let’s discuss all major historical oil price fluctuations in more detail.
Oil Price Increase in 1979-1980
In 1979, the increase in oil prices was caused by the Iranian Revolution, which created a major disruption in global oil supplies. Iranian oil production plummeted, resulting in about a 7% drop in global oil production. Iran was the second-largest oil exporter then, so it was a major supply shock.
The oil prices were further amplified due to panic buying and limited spare production capacity elsewhere. The subsequent outbreak of the Iran-Iraq war compounded the disruption of production in the region. As a result, crude oil prices more than doubled, going from about $15-$17 per barrel in early 1979 to approximately $39-$40 per barrel in 1980.
Oil Price Collapse in 1985-1986
In 1985-1986, oil prices collapsed due to a dramatic increase in Saudi Arabia’s oil production. After years of cutting production to support prices, Saudi Arabia reversed its strategy in late 1985. Being tired of losing market share and increased competition, Saudi Arabia boosted daily oil production from around 2 million barrels to 5 million barrels.
Additionally, oil production increased in non-OPEC countries, such as the UK, Norway, Mexico, and the Soviet Union. As a result of excess supply, oil prices crashed from $31 per barrel in November 1985 to below $10 per barrel by April 1986.
Volatile Oil Prices in 1990-1991
Iraq’s invasion of Kuwait caused oil price volatility in 1990-1991. Both countries’ exports were effectively removed from the market due to UN sanctions. Combined, Iraq and Kuwait represented about 9% of world oil production at the time. As a result, oil prices jumped from around $18 per barrel before the invasion to peaks of $36-$40.
When Operation Desert Storm began, it became apparent that the conflict would not spill over into neighboring countries. It eased market concerns of the extended disruption of oil production. Around the same time, Saudi Arabia and other countries increased production to offset the tight supply. As a result, the oil prices quickly reverted to pre-crisis levels around $20 per barrel.
Oil Price Decrease in 1997-1998
In 1997-1998, oil prices dropped due to several factors affecting both supply and demand. Financial crises in Asia coincided with a very mild winter in North America and Europe, leading to reduced oil demand across all three continents.
Around the same time, OPEC increased production quotas by about 10%, and Iraq’s oil returned to the market, creating oversupply. The result was an oil price collapse from around $25 per barrel in January 1997 to below $10 per barrel by December 1998.
Oil Price Volatility in 1999-2001
In 1999, oil prices recovered to $35 per barrel due to OPEC production cuts, economic recovery in Asia, strong energy demand in the US driven by the dot-com boom, and low inventory. In 2000-2001, oil prices decreased due to the dot-com bubble burst and increased oil production.
The 9/11 terrorist attacks created economic uncertainty and impacted aviation fuel demand, resulting in an accelerated oil price drop to around $20 per barrel.
Climbing Oil Prices in 2002-2006
The oil price increase from 2002 to 2006 was driven by a combination of strong demand growth and supply constraints. China’s entrance into the WTO in 2001 and rapid industrialization created unprecedented oil demand. Additionally, strong growth in the world economy further increased the demand.
The supply side was constrained by the limited production capacity and disrupted Iraqi oil production due to the Iraq War. Besides, the market was concerned about long-term global oil production limits. As a result, the oil price increased to over $70 per barrel during this period.
Dramatic Oil Price Movements in 2007-2009
In 2007-2009, oil prices experienced a roller coaster ride. The price surged from $70 to $133 per barrel, due to continued demand growth in China and other emerging economies. Besides, supply constraints, financial speculation, a weak dollar, and ongoing tensions in the Middle East also contributed to the jump in oil prices.
Then followed the oil price collapse to $40 per barrel, driven by the global financial crisis and economic recession. Additionally, many financial players liquidated their oil positions due to severe liquidity problems. Finally, a strengthening dollar further contributed to the oil price drop.
Oil Price Climb in 2010-2013
Global economic recovery from the financial crisis restored the growing oil demand. Besides, many central banks maintained interest rates at near-zero levels, which increased investments in commodities (including oil) as an inflation hedge.
The Arab Spring movement in North Africa and the Middle East disrupted oil supply, while many OPEC members maintained production levels, keeping the market relatively tight. Oil projects in non-OPEC countries faced technical challenges and delays, limiting supply growth. As a result, the oil price increased to above $100 per barrel.
Steep Oil Price Collapse in 2014-2016
In 2014-2016, the oil price collapsed from over $105 per barrel to about $30 per barrel due to a fundamental change in supply-demand dynamics and market competition. US shale oil production dramatically rose due to technological advances in oil extraction. At the same time, OPEC maintained the levels of oil production to pressure higher-cost producers like shale companies. Additionally, Libya and Iraq returned to the market despite regional conflicts.
On the demand side, China’s economic growth slowed down, and the Eurozone struggled with weak economic performance, limiting oil consumption growth. Besides, improved energy efficiency in vehicles and industrial processes dampened demand growth in developed economies.
Unprecedented Oil Price Swings in 2020-2022
In 2020-2022, the oil price experienced an unprecedented crash and a dramatic recovery. Oil demand collapsed worldwide due to the pandemic lockdown in March 2020. Following that, Saudi Arabia and Russia failed to agree on production cuts and instead launched a price war, with both countries ramping up production when demand was collapsing. Physical storage facilities worldwide approached capacity as unsold oil accumulated, forcing desperate selling and creating an extraordinary situation where WTI crude futures briefly traded at a negative $37 per barrel on April 20, 2020.
Later, in 2021, when economies reopened, oil demand recovered faster than many expected. At the same time, OPEC+ maintained production cuts agreed earlier, resulting in a sharp increase in oil prices.
Russia’s invasion of Ukraine in early 2022 caused oil prices to spike to $130 per barrel. This surge was compounded by Western sanctions on Russian energy exports, which further tightened global oil markets.
To counter high oil prices, the US and other countries released unprecedented volumes from strategic petroleum reserves. By late 2022, central bank tightening to fight inflation sparked recession concerns that moderated oil prices despite tight physical supplies. As a result, oil prices decreased to the levels of $70-80 per barrel.
Summary
History shows that the oil price dynamics are very complex and multifaceted. It is driven by geopolitical tensions, economic expansion and contraction, market competition, production levels, technology advancement, and financial speculation.
Since oil plays an essential role in economic development, we added oil price as a variable to our generated economic scenarios.
Reach out to learn more or request free economic scenario samples.