Oil Price Trends
The price of crude oil and petroleum products as quoted on the news channels, basically refers to a spot price (immediate settlement - payment and delivery) of either Brent crude traded on ICE (Intercontinental Exchange - into which the International Petroleum Exchange has been incorporated) for deliveries at Sullom Voe or WTI / Light Crude as it is traded on the NYMEX (New York Mercantile Exchange) for deliveries at Cushing, Oklahoma. The price of a barrel of crude oil is very much dependent on its grade, API or specific gravity, the sulphur content, and location.
A majority of the crude oil does not come up for trading on commodity exchanges, rather the trading is done on an over the counter basis. Other important benchmarks include Tapis, Dubai, and the OPEC crude oil basket. The (EIA) Energy Information Administration utilizes the weighted average cost of all oil imported into the US, as its "world oil price".
The demand for crude oil and its petroleum products is totally dependant on world macroeconomic conditions. According to IEA (International Energy Agency), higher oil prices usually have a big negative impact on the economic growth of an individual country and the global economy too. Some individuals and organizations may argue that the high crude oil and petroleum product prices over the past many years have actually accelerated global growth
OPEC was formed to control crude oil prices, and the organization essentially worked with oil producing member countries as a cartel. Oil prices have seen a major decrease since the peak it achieved in July 2008. On Dec 23 - 2008, the spot price for WTI crude oil crashed to 30.28$ per barrel, the lowest spot price since the beginning of the global financial crisis. Crude oil was traded between 35$ per barrel and 82$ barrel in 2009.
The lowest point of crude oil prices was in Jan 1999 at 17$ per barrel. This situation was the result of increase in extraction of crude oil & oil production by Iraq, which coincided with the Financial Crisis in Asia, which in turn had reduced demand. Prices increased rapidly - more than double - to 35$ in September 2000, but started falling again till the end months of 2001, before increasing again, steadily climbing to reach 40-50$ by September of 2004. In October of 2004, the futures contract for light crude on NYMEX for November 2004 delivery exceeded 53$ per barrel and for delivery in December the price exceeded 55$. Crude oil prices climbed to record highs of 60+ $ in June of 2005, thus sustaining a major rally based on huge demand for diesel and gasoline and on concern about refiners ability to fulfill the demand.
The trend continued until August 2005, and NYMEX futures contracts of crude oil surged ahead to 65+ $ as the demand for gasoline exceeded supply, despite the high prices. Futures contracts for crude oil peaked at close to 77$ in July of 2006, but fell to 63$ in December 2006. That was just about where the price was in the beginning of 2006. In September of 2007, WTI (US crude) reached 80$. There were many factors contributing to the high price. OPEC decided on a production increase, which was lower than what was expected. The US stock market fell to lower than what the experts had predicted, some changes in the federal oil policy, six pipelines in Mexico were attacked by a leftist group. In October of 2007, US light crude oil prices were above 90$ per barrel for the first time. This was due to tensions in Turkey and the reduced strength of the dollar.
In the first week of January 2008, just one trade was done at 100$ per barrel, but crude oil prices were not stable above 100$ till late February. Crude oil prices broke through the 110$ barrier on March 12, reached 125$ on May 9, 130$ on May 21, 135$ on May 22, 140$ on June 26, and achieved prices of 145$ on July 3. On July 11, crude oil prices rose to a record high of 147$ following concerns over the recent missile tests in Iran.
However, over the next few weeks, crude oil prices started declining and went down by 20$ plus, finally settling to around 125$ per barrel by July 24 of 2008. A strong contributing factor to this decline in oil prices was dropping demand in the US.
Crude oil prices dropped further, down to the lowest price in three months, and were around 112$ per barrel by August 11. On September 15, the price of crude oil fell below 100$. On October 11, prices fell as much as 10.17 percent to 77$ per barrel Oil prices traded below 70$ on October 16. On December 21, oil was traded at 33$ per barrel, which was less than a quarter of the peak price achieved four months ago in July 2008. Crude oil prices rebounded as soon as 2009 started. After initially climbing to above 48$, crude oil prices decreased by the middle of February and were below 34$ per barrel. This was due to forecasts of declining world demand. Throughout March and April of 2009, crude oil prices traded at about 40$ per barrel. By August of 2009, prices were back to 70$ per barrel.