Oil 'Crisis' Now Versus 1970s Oil 'Crisis'

[LamarMundane]

Can someone please tell me what is different about these two timeframes?
Those old enough to remember the 70s oil crisis can recall the scare and fearmongering...prices escalating, inflation rising, etc. I know OPEC put a spigot on the amount of oil they were putting on the market. There was a lot of the 'sky is falling' back then.

Now, in my opinion, you have much of the same thing. Yes---Asian markets are using more and more oil, and that is contributing some to rising oil prices. But I'm just having a hard time swallowing it. Even the Saudis are saying prices are too high. Gas prices have risen from roughly $1.40 four years ago to $3.90 today. Why? Give me a good reason(other than we're being ripped off)

To me, the only true determining factor that can honestly control the price of oil is the amount that's left in the ground. I don't hear anyone saying that the world supply of oil is going to run out anytime soon. Today you have so many artificial factors contributing to oil prices---speculators, controlled production, lack of exploration, favorable energy policies towards Big Oil---lots of things.

Since the 1970s 'crisis' passed over, and here we are 30 years later facing another one, it's hard for me to believe the doom and gloom. I think the prices are being inflated to ridiculous levels because several factors are coming together to allow it...but eventually they will fall back down, just like 30 years ago.

[The_Hill]

It all goes back to the OPEC and how much they limit the supply we recieve. Now that we are starting to SERIOUSLY look for alternatives they aren't going to have a choice but to lower the prices if they want to continue making the insane profit margins they have been making.

[The_Hill]

NM

[Biggus Piggus]

In 1973, the Arabs of OPEC (but not Iran, our friend) declared an oil export embargo to all countries that had supported Israel in the so-called Yom Kippur War that year.  Global oil prices quadrupled during the five-month embargo.  Oil stabilized at that level until 1979, when OPEC started a series of sharp price hikes, and the Iranian revolution took place. 

Before 1973, oil exporters had been losing some of their profits to the weakening of the dollar (oil prices were dollar denominated).  The United States had a spike of inflation from 1968-81 (primarily because unemployment got very low causing wage inflation), and when currencies were forced off the gold standard the dollar had to devalue some more.  Oil prices needed to rise to catch up, even without the embargo.

The longtime top in oil prices was the beginning of the Iran-Iraq War in fall 1980, when oil approached $40/bbl.  Spot market prices began to fall below Saudi Arabia's stated pricing.  Despite OPEC making dramatic production cuts, non-OPEC countries' output growth frustrated the Arabs' attempts to strangle oil supply.

It's worth noting that the recent parabolic increase in oil prices began with the US invasion of Iraq in 2003.  That was the catalyst that pushed oil upward out of a previously moderate long-term uptrend that dated back to 1986.

This time, demand is the problem much more than supply, so that small ripples in supply cause large market price movements.  The supply-demand spread is too tight.  Maybe this will make a difference.

http://www.nytimes.com/2008/06/14/business/14oil.html?_r=1&scp=1&sq=Saudi%20Arabia&st=cse&oref=slogin

[LamarMundane]

I didn't want to get too political, but I too have observed the tight correlation in timing between the recent runup in oil prices and the Iraqi invasion in 2003. It's almost lockstep. Gas was around $1.50 prior.

You hear a lot about this war being about oil. I don't buy that, completely. Do I think Bush had nothing but oil in mind? No. However, I also don't buy the notions of 'fighting terrorism', 'nation building', etc. I think there was one purpose: taking out Saddam. It was a Bush family agenda. That is a strong statement, but I believe it 100%. In that sense, it was truly 'mission accomplished'.

Now, do I think the White House was smart enough to realize that any turmoil in the Middle East was going to play havoc with oil? Yes. Do I think they lost much sleep over that? No. Is there a serious level of suspicion with this administration and lack of trust concerning any matters concerning energy policies when there is such a heavy background of Bush/Cheney in the oil and gas industry? Abso-lutely. I have zero trust. Can I prove it? No. And just what were those secretive Cheney-led energy policy meetings about back then?

This is not a Republican/Democrat discussion. I believe most any Republican candidate would not have led us into the Iraqi war...and I also believe there would be no 'oil crisis' under a different administration. I also believe prices will stablize, and even drop significantly in the near future. Maybe not $1.50 again, but much lower than they are now. Conditions will change(that covers a lot of things) and oil will be back to 'reasonable' levels again. I'm simply not buying the doom and gloom, and that we're stuck with these astronomical gas prices forever. It's the 1970s all over again.

Fire away.

[The Marmot]

I didn't want to get too political, but I too have observed the tight correlation in timing between the recent runup in oil prices and the Iraqi invasion in 2003. It's almost lockstep. Gas was around $1.50 prior.

You hear a lot about this war being about oil. I don't buy that, completely. Do I think Bush had nothing but oil in mind? No. However, I also don't buy the notions of 'fighting terrorism', 'nation building', etc. I think there was one purpose: taking out Saddam. It was a Bush family agenda. That is a strong statement, but I believe it 100%. In that sense, it was truly 'mission accomplished'.

Now, do I think the White House was smart enough to realize that any turmoil in the Middle East was going to play havoc with oil? Yes. Do I think they lost much sleep over that? No. Is there a serious level of suspicion with this administration and lack of trust concerning any matters concerning energy policies when there is such a heavy background of Bush/Cheney in the oil and gas industry? Abso-lutely. I have zero trust. Can I prove it? No. And just what were those secretive Cheney-led energy policy meetings about back then?

This is not a Republican/Democrat discussion. I believe most any Republican candidate would not have led us into the Iraqi war...and I also believe there would be no 'oil crisis' under a different administration. I also believe prices will stablize, and even drop significantly in the near future. Maybe not $1.50 again, but much lower than they are now. Conditions will change(that covers a lot of things) and oil will be back to 'reasonable' levels again. I'm simply not buying the doom and gloom, and that we're stuck with these astronomical gas prices forever. It's the 1970s all over again.

Fire away.

I pretty much agree.....

[Talon]

Can someone please tell me what is different about these two timeframes?

I agree that several factors have come together to pressure oil prices. If there is a single factor that could be removed and make a big impact I'd have to say it would be the continued global increase in demand for oil in a situation where global production cannot be increased easily.  We mostly likely are already at the peak of production and will within a few short years see global production start to decline and once the decline starts it will continue until oil is not a significant player as far as our energy requirements are concerned.

Other factors:

Fall of the dollar.  Our large, continuing current account deficits contribute to the fall of the dollar.  Our dollar is simply worth far less than it was a few years ago.

Speculation.  Sure, there is some investment money flowing into oil and it probably contributes some to the current price.

Dislike of the US.  I've worked overseas a lot of over the years.  I was working in our embassy from 2000-2003.  I watched 911 and the offers of support that came in from all over the world... then I watched how our administration handled things.

No national energy plan.  In my opinion, our dependence on oil is a matter of national security and economic security yet we have little more than a mess.

Do I think oil could come down in the next year or two?  It could.  In the longer term there will be continued price pressure unless we find and use economical alternatives.  We need to face the fact that oil is not the long term answer, especially since much of the world's remaining reserves are in the hands of those who don't like us.

Here is an interesting link:

http://www.nytimes.com/2008/05/12/opinion/12krugman.html

[Anon2]

I remember those 70's.  Living in Mobile at the time and driving back to Ar. for a visit, you had to keep an eye on the gas gauge because you might pull into a station that didn't have any gas.  They were out.

Haven't seen that yet and really don't think it will happen.  I would like to think people are driving less, but when I drive over I-30 going to Wal-Mart, I see as many cars, trucks, and 18-wheelers as I did when gas was cheaper.  Don't see as many vehicles driving in town though.

[BlackKnightHogFan]

I remember those 70's.  Living in Mobile at the time and driving back to Ar. for a visit, you had to keep an eye on the gas gauge because you might pull into a station that didn't have any gas.  They were out.

Haven't seen that yet and really don't think it will happen.  I would like to think people are driving less, but when I drive over I-30 going to Wal-Mart, I see as many cars, trucks, and 18-wheelers as I did when gas was cheaper.  Don't see as many vehicles driving in town though.

We get a windfall profit tax on the oil companies...gas lines return.