West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2022)

West Texas Intermediate Monthly Nominal Spot Oil Price 1970 2022

Source: Federal Reserve Bank of St. Louis.

Oil price changes tend to be sudden, a shift commonly labeled as an oil shock. There are also counter shocks where for various reasons, such as an oversupply or a recession, the price of oil experiences a sudden decline. Under the gold standard (US dollars redeemable for gold) that prevailed until 1971, oil prices were remarkably stable. The first two oil shocks, as well as the First Gulf War (1), were linked with short-lived geopolitical events but with an enduring effect on the price of oil. For instance, it took about six years after the Second Oil Shock to have an oversupply-based countershock (A).

A third oil shock began in late 2003, resulting in four-fold price increases when oil prices peaked in June 2008. Unlike the two previous oil shocks, geopolitics played a more limited role as the surge in oil prices corresponded to growing demand from emerging economies and a decline in the output of several mature oil fields, namely in the North Sea and Mexico (Cantarell). Yet, the Third Oil Shock was immediately followed by a strong countershock that led to a price retrenchment of 69% in the following months (D). The main reason for the sharp decline was a global recession, cutting existing demand and expectations of additional demand.

Between 2009 and 2014, oil prices converged to a new price level hovering between 80 and 100 dollars per barrel. This new price level incited substantial investments in alternative sources of energy as well as in non-conventional sources such as oil sands and shale oil. Producers that were in decline, such as the United States, even saw a growth in domestic oil production. This additional capacity and a slowing demand induced another countershock from late 2014 to early 2016 (E).

In 2020, the coronavirus pandemic resulted in a countershock. The global demand for oil declined substantially because of less economic activity, initially in China and then in all the major oil consumption markets. Concerns about declining oil revenues incited many large exporters, such as Saudi Arabia and Russia, to try to export large quantities of oil on global markets, inciting further price declines. However, this counter-shock was short-lived. By late 2020, prices began to surge partly because of a rapid bounce in demand but mostly because of massive fiscal stimulus (quantitative easing). The onset of the War in Ukraine in March 2022 further exacerbated the situation since Russia accounts for about 11% of global oil exports.

The supply of petroleum remains an issue of concern where at times, supply has difficulties keeping up with the demand, and on other occasions, supply exceeds demand. There are also long-term concerns about peak oil which is a physical inability to provide a higher level of oil supply due to less recoverable reserves as well as greater technical difficulties in extracting existing reserves. Further, energy transition policies can create disruptions and shortages as alternative energy sources may offer less stability and resilience than oil.

The table below underlines the events that had the most significant impacts on oil prices.

Price Change EventPrice Change Time FrameMain FactorsNominal Price Change
First Oil Shock (2)October 1973 to March 1974Yom Kippur War / OPEC oil embargo / Devaluation of the US dollarFrom $4.31 to $10.11 (+134.5%)
Second Oil Shock (2)April 1979 to July 1980Iranian revolution (1978) / Iran-Iraq war (1980)From $15.85 to $39.50 (+149.2%)
First oil counter shock (A)November 1985 to July 1986OPEC oversupply / Lower demand / New producersFrom $30.81 to $11.57 (-62.4%)
First Gulf War (3)July 1990 to November 1990Iraqi invasion of KuwaitFrom $18.63 to $32.30 (+73.4%)
Asian Financial Crisis (B)January 1997 to December 1998Debt defaults / Non-USD currency devaluations / Reduced demandFrom $25.17 to $11.28 (-55.1%)
“Asian Demand Contagion” (4)January 1999 to September 2000Rising demand / OPEC output cutbacksFrom $11.28 to $33.88 (+200.3%)
“September 11 Effect” (C)August 2001 to December 2001Oversupply / American recessionFrom $27.47 to $19.33 (-29.6%)
Third Oil Shock (5)December 2003 to June 2008Rising demand (China) / Monetary debasement / SpeculationFrom $32.15 to $133.95 (+316.6%)
Financial Crisis of 2008-2009 (D)July 2008 to February 2009Collapse of asset bubbles / Demand destruction / Global recessionFrom $133.95 to $39.09 (-70.7%)
Crisis recovery (6)February 2009 to April 2011Recovering demand / Low interest ratesFrom $39.09 to $109.53 (+190.2%)
Fifth oil counter shock (E)September 2014 to February 2016Oversupply (oil shale and tar sands) / Global recessionFrom $109.9 to $44 (-58.4%)
Sixth Oil counter shock (F)February 2020 to June 2020Coronavirus (COVID-19) PandemicFrom $59.88 to $20.3 (-66.1%)
Fourth OIl Shock (7)October 2020 – Stimulus-derived inflation / War in Ukraine.From $39.40 to $108.5 (+175.3%)