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Evolution of Oil Prices for a Century

By: Thomas Chaize, Dani 2989, Dani 2989

-- Posted Monday, 1 November 2004 | Digg This ArticleDigg It!



It is the first one of three articles concerning the petroleum price? This one has for subject the evolution of oil prices for a century. The purpose is to show diagrammatically the big stages of the evolution of the prices since 1920.





The barrel of raw product evolves for 100 years in a price range between 1 $ and 40 dollars. The price of the oil is very important for the whole world economy. For example, the crisis of the OPEC of 1973 had enormous consequences on the savings of industrial nations. 







The subject is not to explain here the reasons of the various declines and the price increase, but to find the big tendencies of these prices.


- ( A ) from 1920 till 1970, the price of hydrocarbons stayed in a canal which has for ceiling the zone of 5 dollars the barrel. But, in 1973 with the crisis of the OPEC (Organization of Petroleum Exporting Countries), the price of oil goes out of its old trend.


- ( B ) From 1970, the price of the barrel evolves in a price range included between 10 dollars and 40 dollars, it will never come down again below this threshold. Punctual crises push the prices up to 40 dollars and increases of brief periods of overproduction make fall the prices to the zone of 10-15 dollars the barrel.


- ( C ) Today, the price of the barrel crossed the very important threshold of 40 dollars the barrel. The question is to know if the oil went out definitively of its old valuable trend ?


The increase of current prices can be seen as a punctual and temporary crisis, the oil will return to its canal below 40 dollars.

Other solution, as in the 1970’s, a balance is broken and the market is not any more under control, what will make the prices of the barrel towards a new much higher valuable zone. We can also think that on bottom of peak of production, the price will only be rising up to the last drop of gasoline.

The resistance became support today, it is for it that the zone of 40 dollars is very important, it is necessary to watch very attentively this valuable sector.




- The oil is necessary in all the domains of the economy today.


1. The oil is used as mechanical source of energy. It serves as source of energy for cars with the gasoline, planes with the fuel. He also allows to build roads for cars from the tar.

2. Thermic usage for the heater of houses with the fuel.

3. Lubricants, the oil serves as lubricating oil in the industry and the transport.

4. The derived chemical materials, thanks to the cracking  which is a process of refining. We can so modify the composition of the petroleum and we obtain the other products as the benzene, toluene, xylols which allow the manufacture of plastics(plastic arts), textiles(textile industries) synthetic materials, synthetic, detergent rubbers and intervene in the manufacture of complex fertilizers.


- The oil stood out as main energy source, and his by-products are very useful too for the modern economy, what make a constant increase of the demand with the increase of the world population. But, the offer seems to have difficulty in following this demand for some months. The problem is to know if, it is the temporary crisis due to some hedge fund that takes advantage the temporary gap enters supply and demand, or if it is a deeper structural crisis due to a peak of production in the extraction of the oil that prevents since the offer of the producing countries from following the world demand. It is moreover very surprising to see the OPEC, which is there to prevent the price fall, fight itself to make them fall by announcing more and more important increases of production.


- Problems of transport and refining come to complicate still a little more the fragile balance of the prices. Oil pipelines cannot forward the petroleum everywhere, tankers seem not to be enough any more for the transport, the strategic stocks are renewed with difficulty and refineries turn at full capacity. But let us not make a mistake, these problems are important, but can be resolved, what is not the case of the peak of production of mineral oil.


- The true problem is that of the resources, to 1970s, Man discovers more oil than he consumes it. But, with Hubbert peak which occurs, today in 25 years for the most optimistic, the prices should evolve in a very different way. It is more and more difficult to discover new oil-fields and to build new oil wells. The geologists have more and more difficulty to discover new oil-fields while in parallel the demand does not stop growing. We can say: end the period of the huge deposits of Ghawar and Abqaiq in Saudi Arabia, it is past the time when it was enough to plant a tube in the sand so that the oil springs. Now, even the offshore exploitation became profitable. This situation is complex all the more as firstly, the oil is difficult to store and secondly the deposits(stocks) are limited. It is very difficult to store some oil today to take advantage of the increase of tomorrow, because the production is in tended flow (stream tightened) and stocks are very limited with regard to the consumption.


The future of the oil price seems to me to connect to the nearness of the peak of production. Then, according to your opinion on this subject, you will have a different point of view on the evolution of oil prices. If there is no problem of production, the prices should quickly return to the canal between 15 and $40. If the peak of production is close, then the prices should stay except this canal in the future. Will the prices evolve of a higher canal either in constant increase? It will depend on our capacity to replace the oil by the other sources of energy. Be careful!!!! This is a long-term vision, peaks of increase or short-term decline are always possible, it affects not at all the long-term evolution. Since the first one oil-well of Edwin Drake's oil, the world consumed enormous quantities of oil that the nature had put dozens million years to be made. It is sure that the peak of production will take place. The question is to know when, yesterday, today, or in 5, 10 or 25 years? 

-- Posted Monday, 1 November 2004 | Digg This Article

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