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An Annotated History of World Oil Price Shocks

Tyler Durden's picture




 

A sharp increase in Middle East geopolitical tensions, first with the resurgence of a radical al-Qaeda affiliate – now called the Islamic State – making substantial territorial gains in major oil producer Iraq, and more recently with an escalating military conflict between Israel and Hamas, has barely caused a blip in global markets and even in oil prices despite the fact that oil supply today is tight. At the same time, the conflict between Ukraine and Russia – the largest oil producer globally – has reached a more dangerous level, also with little oil price response. Indeed, it is difficult to identify another point in recent history when the Middel East – for all its troubles – was in such a precarious state; yet, as Goldman, rather rhetorically asks, this raises the question of whether the markets are being too dismissive about the recent turn of events.

 

150 years of oil price shocks...

 

and a close-up on the chaos of the last 8 months...

 

Perhaps the following from Goldman best sums up the situation...

At what point does the US panic?

 

Meghan O’Sullivan: The US should have already panicked.

 

Major American economic and political interests are at stake. The erasure of the Syria-Iraq border by a group that is considered too radical for al-Qaeda, the takeover of Iraq’s second largest city by IS, the kidnapping of international diplomats, and the declaration of an Islamic caliphate in large parts of Iraq and Syria – each one of these should be a major signal about the gravity of the situation.

Source: Goldman Sachs

 

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Wed, 07/23/2014 - 08:53 | 4992272 prudent1nvestor
prudent1nvestor's picture

Chart is way off. Oil was trading under $40 in 2007/2008

Wed, 07/23/2014 - 08:58 | 4992281 holdbuysell
holdbuysell's picture

What's mind boggling is who was willing to sell the world oil at under forty bucks when the marginal cost was over 80.

Wed, 07/23/2014 - 09:01 | 4992290 GetZeeGold
GetZeeGold's picture

 

 

The same people selling gold under $300 in 2000.

Wed, 07/23/2014 - 09:05 | 4992300 Save_America1st
Save_America1st's picture

And let's not forget we have to factor in how many Trillions of U.S. dollars have flooded the world since 2008 that have massively devlaued the value of the petro-dollar.

Our U.S. debt has gone up 8 Trillion since 2008...but how many more Trillions has the Fed CTRL-P's into existence world-wide since then?  10's of Trillions more. 

The inflation that's eventually going to hit America is going to be fucking epic.

Tick Tock...

Wed, 07/23/2014 - 09:31 | 4992419 ejmoosa
ejmoosa's picture

The Average Joe won't have the wealth to compete when all those dollars come home to purchase the lands and businesses that they today call America.

Locked out will be an understandment.

 

Wed, 07/23/2014 - 10:21 | 4992655 Save_America1st
Save_America1st's picture

they'd be able to compete if they would get their freakin' heads out of Kim Kardashian's big fat ass and start stackin' phyzz now before it's too late.

Silver is still on a screaming sale, but it won't be for long.  The sheeple are going to be totally wiped out if they haven't stacked any phyzz before the SHTF. 

That puts us stackers in a precarious position afterwards when the Free Shit Army starts to roam like zombies.  The scumbag, treasonous government will demonize all stackers and preppers as "hoarders" and will blame everyone's misery on us.

That's why we have to keep stacking lead and lead delivery systems as well. 

Stack on, bitchez! 

 

Wed, 07/23/2014 - 09:14 | 4992332 madbraz
madbraz's picture

Funny, when I look at my data, not MSM, I see that the marginal cost for Saudi Arabia is less than $10/barrel, and in Iran, Algeria, Qatar, Lybia it is less than $15/barrel.

 

You believe what you want to believe.

 

If people were forced to buy iPhone's for $1,000, and there was no product alternative that cost less, I'm sure you would find competitors with "marginal costs" of $900.  

 

If not for financial speculation, oil would still trade in the $40/barrel range.  If contracts had to be settled, instead of rolled over, the charade would end.

Wed, 07/23/2014 - 10:59 | 4992883 CrashisOptimistic
CrashisOptimistic's picture

You don't understand oil.

KSA pumps enormous amounts of water into the ground to wash oil out of pores and get it to the surface.

There are still a very few wells there that flow and flow and flow without the water.  THOSE few wells might produce oil for just the price of the staff working on the surface, maybe $20, but that's not "marginal".  That's Lowest.

Those two words are not the same thing.

A marginal barrel is the NEXT barrel to come out of the ground.  That's in Manifa.  Offshore, requiring artificial islands that have been hauled in.  THAT marginal barrel is no way in hell $10.

 

Wed, 07/23/2014 - 12:42 | 4993577 Variance Doc
Variance Doc's picture

Clearly you don't understand money (and oil) either.

Look at the stock of "money" (really currency e.g. USD). There is no way in hell that oil would trade at 40. Idiot.

Wed, 07/23/2014 - 09:50 | 4992522 all-priced-in
all-priced-in's picture

Marginal cost to pump an existing well is not the same as marginal cost to explore, drill and pump a new well.

You are really talking about "replacement" cost.

 

In the short term it does not matter - cash flow would still be positive for most existing wells.

 

 

 

 

Wed, 07/23/2014 - 11:10 | 4992941 CrashisOptimistic
CrashisOptimistic's picture

Actually, the most powerful event that can take place would be a choice.

KSA and Russia both produce far more oil than their citizens need.  To create global catastrophe, all that has to happen is a choice on their part to save the oil for their grandchildren and not pump it.  Maybe just provide 1 mbpd beyond their own needs, export it for cash to buy replacement pump parts, and fuck the rest of the world.

They'll make less money.  Money is printed and largely meaningless.  If they pump enough oil to buy food and comfort, that's all they need to do.

Wed, 07/23/2014 - 10:16 | 4992665 strannick
strannick's picture

This graph mistakes manipulation for markets

Wed, 07/23/2014 - 09:02 | 4992282 Tall Tom
Tall Tom's picture

The chart is an average of the price of Oil and does not show every fluctuation.

 

Oil was trading very high in 2007...near $100. That was a contributing factor to the Crash. 

 

It was not until after the Crash in Septenber, 2008, as everyone was scrambling for liquidity, that Oil Prices collapsed.

Wed, 07/23/2014 - 09:06 | 4992289 Smegley Wanxalot
Smegley Wanxalot's picture

It's in 2013 dollars, and that dip was only for a short period (end of 2008 I think).  It shows most of that dip but in a very crunch timeframe.  It also doesn't show the time the price spiked because a camel farted in Qatar.

Wed, 07/23/2014 - 10:39 | 4992791 WarHorse
WarHorse's picture

The intraday high in July 2008 was $147.  Chart is fucked

Wed, 07/23/2014 - 11:05 | 4992850 CrashisOptimistic
CrashisOptimistic's picture

This says oil hasn't been south of $60 since about 2006.  Tiny high 50s tick in early 2007, but that's it.

 

http://www.fedprimerate.com/crude-oil-price-history.htm

 

 

Wed, 07/23/2014 - 08:55 | 4992278 jubber
jubber's picture

Brent came off $10 because Libya was "fixed" , the news coming out of there is getting worse by the day 60 dead ih the loast two days, + a beheading...and Brent has done nothing...sure looks like TPTB are suppressing the Oil price and the Gold price here.

Wed, 07/23/2014 - 09:03 | 4992288 ekm1
ekm1's picture

There is $50 into the price of oil as BANK LOBBY PREMIUM.

 

Oil is being used as collateral to gamble on derivatives, same as copper, aluminum, iron ore etc.

 

If Primary Dealers were forbidden to own commodities, oil price would drop to $50, where it belongs.

 

In 2008 George Bush ordered Lehman dead and ordered oil be dumped into the CONSUMPTION MARKET thus making a big gift to Obama who started with oil at $40.

 

Obama, as Bank-lobby's man, re-started it again.

So, Bank Lobby is ruining the economy to survive.

Wed, 07/23/2014 - 09:05 | 4992311 ekm1
ekm1's picture

There is a Civil War right now between Bank Lobby and Oil/Industiral Lobby for oil and commodity control.

 

Bank lobby has Obama, dems and establishment repubs.

Oil lobby has Tea Party.

Military complex is the most important factor.

 

I fear street executions of executives coming soon on a street near you.

Wed, 07/23/2014 - 09:19 | 4992344 Fiscal.Enema
Fiscal.Enema's picture

Good concise explanation. Thank You... I've been worried about the anger hitting the streets real soon.  

Do you have any idea what the trigger will be?

Wed, 07/23/2014 - 09:24 | 4992377 ekm1
ekm1's picture

My expectation in may 2013 was for no later than december 2014.

However, timing is impossible for humans, timing belongs to God only.

 

Events depend on FREE WILL of humans, not palm reading.

Free Will is unpredictable and uncontrollable

Wed, 07/23/2014 - 09:19 | 4992348 wrs1
wrs1's picture

 What makes you think oil is properly priced at $50?  Do you know what it costs to drill a well these days?

Wed, 07/23/2014 - 09:22 | 4992357 ekm1
ekm1's picture

There is a huge confusion and propaganda about the concept of COST.

 

All costs are labor costs, if technology exists.

 

It's the price that forces costs, not vice versa.

 

So, if market can handle only $50 oil, then the market will force lower costs.

Wed, 07/23/2014 - 09:51 | 4992532 wrs1
wrs1's picture

I don't think that all costs are labor and oil is where it is, you have to go get it.  It's not out there in your back yard as they make it appear on the Beverly Hillbilly show.  Maybe you just don't understand the process of finding and delivering oil to the market, I suspect that is the nature of your confusion.

Wed, 07/23/2014 - 10:00 | 4992567 ekm1
ekm1's picture

I said 'if technology exists'

Wed, 07/23/2014 - 11:50 | 4993198 wrs1
wrs1's picture

technology costs money, raises the price o the oil.  Clearly you aren't familiar with the cost of frac technology and drilling 10,000 feet before doing a 4000 foot horizontal for the typical well.

Wed, 07/23/2014 - 14:28 | 4994209 ekm1
ekm1's picture

Again, I said: If technology exists.

So I agree with your statement

 

All costs are costs to pay people.

If technology exists, costs to pay people are manageable.

Wed, 07/23/2014 - 09:38 | 4992457 holdbuysell
holdbuysell's picture

So, cheap oil does exist and thus the current suburbia/SUV way of life can continue?

Wed, 07/23/2014 - 09:39 | 4992477 ekm1
ekm1's picture

$50-60 is not cheap. $20-30 is cheap.

$100 is oil in hyperinflation

 

And yes, there is plenty, plenty, plenty of oil.

 

Issue is that Military is needed to control that oil in 'foreign' lands

Wed, 07/23/2014 - 09:53 | 4992535 wrs1
wrs1's picture

Where is all this plenty, plenty of oil you talk about and what are the means and methods for extracting it and getting it to market?

Wed, 07/23/2014 - 10:02 | 4992580 ekm1
ekm1's picture

Nature will never ever ever run out of any element or compunds. Nature is abundant, always and at anytime.

 

If technology exists and if military superiority is maintained to control it, abundance of energy is not a issue.

Wed, 07/23/2014 - 11:21 | 4993021 El Vaquero
El Vaquero's picture

That is a very dumb statement. 

 

Fact:  The planet is finite.

Wed, 07/23/2014 - 11:25 | 4993036 ekm1
ekm1's picture

Did you ever run out of air to breathe?

 

It's stock and flow concept.

The rate of extraction is the problem, not the quantity of oil

Wed, 07/23/2014 - 11:28 | 4993069 El Vaquero
El Vaquero's picture

That's a false analogy.  How fast is oil created and how fast are we using it?  How does using oil differ from breathing air?  What is energy in the physics sense?

Wed, 07/23/2014 - 11:34 | 4993104 ekm1
ekm1's picture

Oil is created faster than we consume it.

It's abiotic

Wed, 07/23/2014 - 11:41 | 4993145 El Vaquero
El Vaquero's picture

If that were the case, we would literally be swimming in it.  Since I'm not covered in oil, I'm going to go ahead and say you are wrong. 

Wed, 07/23/2014 - 13:07 | 4993711 wrs1
wrs1's picture

It's not created in the same place faster than it is consumed.  That is the problem, oil wells go dry, stop flowing or flow at greatly reduced rates over time.  Have to keep poking new holes deeper and deeper which costs more and more money.  You really have no clue.

Wed, 07/23/2014 - 14:31 | 4994220 ekm1
ekm1's picture

If technology exists, meaning if non-human work is available to extract the plentifulness of oil AROUND THE WORLD and if US military manages to control people on top of that oil, then there is no problem.

 

Technology = non human work

Cost = paying humans

Wed, 07/23/2014 - 14:50 | 4994329 El Vaquero
El Vaquero's picture

Technology = ENERGY USE

 

Learn what the fuck energy is.  Every time you move, you expend ENERGY.  Every time you heat something up, you expend ENERGY.  Every time you mine iron ore necessary for some technological gadget, you consume ENERGY.  Every time you smelt iron ore to produce steel alloys, you expend ENERGY.  Every time you put those steel parts together to make an oil rig, you expend ENERGY.  Every time you move that oil rig, you expend ENERGY.  Every time you produce well casing, you expend ENERGY.  Every time you fire up a machine to drill a new well, you expend ENERGY.  Oil is a highly convenient form of stored ENERGY.  When you have to expend one barrel of oil to extract one barrel of oil, physics says you are fucked.  When you have to expend one barrel of oil to extract roughly ten, economics says you are fucked or nearly fucked in a world as dependent as oil as ours is.

 

The real cost is not in dollars.  It is in joules.  Those machines and gadgets that you imagine will solve this problem do not run on unicorn farts.  

Wed, 07/23/2014 - 15:02 | 4994396 ekm1
ekm1's picture

Earth will not run out of energy anytime soon.

Wed, 07/23/2014 - 15:14 | 4994472 El Vaquero
El Vaquero's picture

Yet I doubt you even understand what energy is.  But you're right, we're not going to run out of oil.  We're going to leave a shitload of it in the ground because it is going to become too costly in joules to extract. 

Wed, 07/23/2014 - 11:19 | 4993004 El Vaquero
El Vaquero's picture

Except capex by oil companies has been increasing by 11% per year since 2000, oil companies are selling off equipment to pay dividends, and when you add up all of the costs, oil should be at least $120/bbl or $130/bbl to justify current extraction rates.  Oil is cheaper than it should be.  Either price goes up in the future, or production goes down.  Price going up will crush our economy, and production going down will crush our economy.  We're fucked.

Wed, 07/23/2014 - 11:23 | 4993029 ekm1
ekm1's picture

You got it backwards

 

Price affects costs, not vice versa

 

All costs are labor costs, if technology exists.

Wed, 07/23/2014 - 11:30 | 4993075 El Vaquero
El Vaquero's picture

No, EROEI is going down.  This is a physics problem, not a labor and technology problem.

Wed, 07/23/2014 - 11:34 | 4993100 ekm1
ekm1's picture

EROEI is propaganda

Wed, 07/23/2014 - 11:43 | 4993159 El Vaquero
El Vaquero's picture

It's propaganda that we have to drill wells many thousands of feet and pump water and other shit in?  It's propaganda that we have to build giant rigs and haul them out into the ocean to drill under water?  It's propaganda that we used to be able to drill a couple of hundred feet and get oil gushing out?  It's propaganda that wells like that are the exception rather than the norm these days?

 

Learn what the fuck energy is. 

Thu, 07/24/2014 - 09:19 | 4997489 Flakmeister
Flakmeister's picture

Hey EK!

You are either a troll or an idiot...

My money is on the latter...

Wed, 07/23/2014 - 09:01 | 4992296 Cattender
Cattender's picture

it's a sign of a Healthy economy when gas prices are High here in the u.s. $4 a gallon is a Strong indication that we are in a RECOVERY!!!!! LOL..

Wed, 07/23/2014 - 09:02 | 4992298 youngman
youngman's picture

To me..nothing seems to move the markets anymore...nothing..we seem dead to all news events now..what moves a market are the HFTs...that is all...their millisecond plays

Wed, 07/23/2014 - 09:33 | 4992428 ejmoosa
ejmoosa's picture

Hell, there's hardly any economic news being reported.  Even the # of stories at this site has dropped sharply.

 

It's the calm before the shitstorm.

Wed, 07/23/2014 - 09:03 | 4992304 Pemaquid
Pemaquid's picture

Possibly the FED and it's minions have perfected market manipulation to the extent that no matter what happens they will be able to control prices. Sad, truly sad.

Wed, 07/23/2014 - 09:11 | 4992321 buzzsaw99
buzzsaw99's picture

the way i see it:

1) inflation adjusted charts are bogus.

2) oil prices were artificially suppressed for decades.

3) oil will go much higher in the future

Wed, 07/23/2014 - 09:12 | 4992326 NEOSERF
NEOSERF's picture

Fracking revolution, net exporter to the world and my only question is WHERE IS MY $2 gasoline????  WTF.  If this is the benefit to citizens in putting derricks everywhere, fouling the water, creating toxic sludge and earthquakes, let's leave it to the arabs.

Wed, 07/23/2014 - 09:58 | 4992559 observiate
observiate's picture

this is partly a question of supply chain and refining capacity, although to address the full scope of your question would take a book.  many books have been written and are available on the question of energy infrastructure and energy policy. at any rate,  yes, there is absolutely a fracking and drilling revolution currently occurring in the U.S.  With the drilling boom has come the need for additional infrastructure to bring the oil and gas to market. 

Most of the refineries are on the gulf coast, while much of the new "fracking oil" (it's no different than regular oil, it's just produced from a different type of rock) is produced inland, in New Mexico, West Texas, and of course, North Dakota, among other areas.

So we need pipelines to pipe all the oil to the refineries, and we need more refineries to refine the oil and natural gas into all the products we take for granted on a daily basis.

Here's your key points:  Environmental regulations create a severe barrier to entry for anyone or any company hoping to build a new refinery.  However, many new pipelines are currently being constructed, especially throughout West Texas.  Yet, the refineries can only refine so much gasoline at a time. 

Therefore, while acknowledging that there are many more factors involved and acknowledging that the above is a very very short summary of supply chain economics, the bottom line is you get your $2.00 gasonline from all the companies' ability to refine more and more gasoline to meet demand and lower the price.  But with all the environmental regs we have to keep up with....you might as well resign yourself to $4.00 gasoline for the rest of your life.

Now, if a true Austrian Economics based free market revolution were to occur in the U.S., especially in the energy supply industry, I believe we would see the price of gasoline come down. 

alas! I remember when i first got my driver's license in 2004 gasoline was selling for $1.00 per gallon in Houston, TX.  Oh for that pricing to return!

Wed, 07/23/2014 - 12:14 | 4993367 TeethVillage88s
TeethVillage88s's picture

You make some good points about "moats".

Refineries seem like a clear bottleneck.

Technology itself is a kind of moat for entering a lot of kinds of business. Hazardous materials should be managed properly and it takes a lot of education. If I was a young GWB and had $400K to drill my first well, I might screw things up pretty well and make a huge mess. Auto manufacturing is well known for having a moat due to high capital costs, but it is more complicated than that.

Anyway I was going to say, I heard that mining & drilling for Resources gets more and more expensive each year. The reason is it is harder and harder to find what we want. Think of a vast area on a mountain opened up miles across and down a mile just to get a few OZ of ore per cubic ton.

Wed, 07/23/2014 - 13:28 | 4993850 Kprime
Kprime's picture

When I was in high school gas was .50 per gallon. 

When I was 10, I recall driving from California to Texas and paying only .11 a gallon.  That was in the late 60's.  They were having gas wars.  That's where they were trying to out do each other by seeing how low they could push the price of gas.  Normal prices were about .20.

Wed, 07/23/2014 - 09:14 | 4992330 Mercury
Mercury's picture

Oil priced in gold it has been more stable:

http://pricedingold.com/crude-oil/

Wed, 07/23/2014 - 09:15 | 4992334 wrs1
wrs1's picture

Maybe that is the indicator that nothing is really disrupting the supply because all of these events are local.  The greatest price risk would probably be losing the extra supply from Iraq. I would think that something will have to affect supply before prices move much.

Wed, 07/23/2014 - 09:17 | 4992339 Racer
Racer's picture

The 'markets' do not exist as markets any longer since the continual daily fraud that is HFT is allowed.

Wed, 07/23/2014 - 09:24 | 4992385 SelfGov
SelfGov's picture

The global conventional production peak of 2005 is missing from that graphic.

Wed, 07/23/2014 - 09:37 | 4992456 orangegeek
orangegeek's picture

WTI has been swinging wild the last few days.

 

http://bullandbearmash.com/chart/wti-oil-daily-whipsaws-move-105-downturn/

 

May see 105 before we roll down.  Lots of downside risk.

Wed, 07/23/2014 - 11:15 | 4992974 teslaberry
teslaberry's picture

there is no current supply shock in the price of oil. this is an outright lie.

higher oil prices in the u.s. are simply AN INTENTIONAL DECLINE IN DOLLAR PURCHASING POWER. 2% INFLATION TARGETING IS PLANNED SAVINGS CONFISCATION , AKA,

THE BANK TAX.

Wed, 07/23/2014 - 11:24 | 4993047 El Vaquero
El Vaquero's picture

You only say that because you think in terms of dollars, not joules.  Work = Force times Distance.  Energy = The Abiility to do Work.  Energy can neither be created nor destroyed, but it can be used inefficiently (i.e. 1 joule of energy gets used to do .25 joules of work.)  The planet is finite.  Energy is finite.  The dollar is fucked, and so are we when it crashes, becuase we import a big chunk of our joules, and it is the petrodollar system that allows that. 

Wed, 07/23/2014 - 11:46 | 4993178 observiate
observiate's picture

whichever Durden posted this one is kind of forgetting about the U.S. production revolution, it would seem, with fracking, et al.  take it from someone who resides in an area that is ground zero for the current oil boom.  some of those commodity analysts aren't as smart as they think, or maybe they just being a bit myopic....at any rate the price hasn't spiked as much because the honest-to-goodness flood of oil being produced right now in WTX and North Dakota is:

1. causing a paradigm shift in the underlying factors affecting global oil commodity prices and pricing inputs

2. therefore, it is logical, although possibly not explicitly obvious, to see a probable explanation as to why prices have not spiked despite recent geopolitical crises

Wed, 07/23/2014 - 12:05 | 4993318 TeethVillage88s
TeethVillage88s's picture

But Oil & Gas are commodities subject to futures trading.

Wed, 07/23/2014 - 11:53 | 4993227 LostandFound
LostandFound's picture

My bet is, all this middle east tension is created to increase the price of energy to the point it collapses the western system. The wars in the middle east will be blamed for the lack of structural reform of the global economy.

Maybe i am talking shit though.... 

 

Wed, 07/23/2014 - 12:04 | 4993306 TeethVillage88s
TeethVillage88s's picture

Oil Cartels, Banking Cartels, Oil & Gas are Commodities traded on the Futures Exchanges, Humans with Money Speculate on the Emotions & Psychology...Therefore what?

Price of Oil probably depends on if someone has the market fixed, OR if there are better Speculative Investments with better Returns, OR if there is a lot of Cash Sitting around, OR if there are Secret Agreements or Treaties with powerful Players, OR if there there is a known Price Toleration Ceiling for the Economy.

What did Reagan Do to correct the price of Oil????

Anyone?

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