OIL AND GAS PRICES

Oil and Gas Prices

Oil and Gas Prices

Introduction

Oil provides the main source of energy for advanced industrial economies. A sudden rise in the price of oil due to, for example, speculation or to a severe disturbance in the existing relationship between supply and demand can therefore create an oil crisis. (Clark, 1991) This can endanger economic and political stability throughout the global capitalist economy. In the postwar period there have been two major oil crises. The prospects for further crises cannot be discounted.

The first major oil crisis of the postwar era occurred in 1973. This was caused when Arab members of the Organization of Petroleum Exporting Countries (OPEC) decided to quadruple the price of oil to almost $12 a barrel. (Stocking, 1975) Oil exports to the United States, Japan, and Western Europe, which together consumed more than half the world's energy, were also prohibited. This decision was made in retaliation for Western support for Israel in the Yom Kippur War with Egypt and in response to a persistent decline in the value of the U.S. dollar (the denominated currency for oil sales), which had eroded the export earnings of OPEC states. With the global capitalist economy already experiencing difficulties, these actions precipitated a steep recession accompanied by rising inflation. This forced capitalist nations to embark on a process of economic restructuring in order to reduce their dependency on oil and prompted fears that the United States might take military action in order to secure free access to its energy supplies. Although the oil embargo was lifted in 1974, oil prices remained high, and the capitalist world economy continued to stagnate throughout the 1970s.

After oil was discovered in 1859 in Titusville, Pennsylvania, it became a major element in the Industrial Revolution in the United States. In the early days of oil development, the American oil industry was controlled by only a few companies that created large trusts designed to cut out competition and retain as many profits as possible by controlling the entire process of petroleum or oil production and transportation.

These trusts were controlled by oil barons such as John D. Rockefeller of the Standard Oil Company, who ruthlessly squelched competition. The large oil companies manipulated prices in such as way that they received rebates from railroads while independent refineries were charged twice the going rate. When competitors or independents balked at the ruthless tactics of the oil barons, they ...