Oil prices through the ages

Over the last 150 years, we’ve passed through a number of ages. The Age of Steam, the Space Age, the Disco Age, the Information Age, the Emo Age and – arguably – we’re coming to the end of the Cheap Energy Age. Maybe it’s already over, maybe it’s got a little while to go yet. It really depends how you define “cheap energy”. There probably aren’t many of us who reckon petrol is cheap at the moment, but hey, it’s still cheaper to power our cars with petrol than with other substitutes.

Anyway, this post is really just about getting some more Transport Statistics up on the site. Oil prices since 1861, as recorded in the BP Statistical Review of World Energy 2013. The graph shows two different series: “nominal” prices in blue, and “real (2011)” prices in red. Nominal prices are given in the dollars of the day. In the year 1900, for example, a barrel of oil cost USD $1.10, but of course you could buy a heckuva lot with $1.19 back then. If we try to put it into more relevant terms for us – i.e. convert it to today’s prices – we use “real” prices instead. $1.19 in 1900 had the same purchasing power as $32.71 has today, so the “real” price in 1900 was $32.71.

I’m sure I’m usually better at explaining inflation than that, so I reserve the right to come back and edit that bit!

Looking at prices through the ages, there was clearly a big jump in the 1860s. Don’t ask me why, maybe those weren’t good years for whaling, or something. Anyway, it wasn’t until the 20th century that oil became important for transport. Automobiles became popular, and demand for oil grew. Production was easily able to grow with it in those days, so prices stayed low. In fact, they stayed pretty low for the first 70-odd years of the 20th century, and then

Boom. Oil shock. In 1972, the nominal price was $2.48 a barrel. In 1974, it was $11.58 a barrel. In the late ’70s, things got worse, and prices hit $36.83 in 1980 – a fifteen-fold increase on 1972 prices. The 1970s were a massive shock to the world economy, and created an era of “stagflation”: economic stagnation, coupled with rapid price inflation.

If you look at “real” prices, instead of nominal, the increase looks smaller – real prices increased by 7.5 times, rather than 15 times. The difference is because of inflation over the eight-year period. However, this hides the fact that the rise in oil prices was one of the major causes, if not the main cause, of high inflation in the 1970s.

Moving on, prices started to come down in the 1980s, and stayed low for the better part of two decades. In the last ten years, though, things done changed. You had September 11, the Iraq war, and so on. Between 2003 and 2012, oil prices quadrupled in nominal terms, and tripled in real terms. Again, oil prices were a big contributor to inflation over this period.

Which brings us up to the present day. Predicting the future is much harder than predicting the past, so I’ll leave that for another time.

ENDS

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