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Price of Oil


Submitted By makloud41
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The price of oil - in context
CBC News Online | April 18, 2006

Oil is sold in barrels - it's the same unit of measure used to sell whisky. A barrel of oil - or whisky - contains 159 litres.

The price of a barrel of oil has been testing new highs since it pushed through $50 a barrel in September 2004 - and pushed gasoline prices well beyond $1 a litre in the summer of 2005. But how high are prices like that, historically speaking? Turns out these records may not be records, after all.

Oil prices were stable for most of the 100 years before 1973 at well under $5 a barrel. Expressed in today's dollars (all figures in U.S. dollars), the price was closer to $10 a barrel, hitting highs of about $15 and lows close to $8. Even as the world economy boomed in the decades following the Second World War, prices remained fairly stable. That's mainly because the United States held most of the clout in the oil industry - and the U.S. government regulated the price of oil.

From 1958 to 1970, prices were stable at about $3 per barrel, but in real terms the price of crude oil declined from above $15 to below $12 per barrel. The decline in the price of crude when adjusted for inflation was further exacerbated in 1971 and 1972 by the weakness of the U.S. dollar.

But by the early 1970s, that changed. The Organization of Petroleum Exporting Countries had become a force and in 1973, the first major oil shock hit the world as Arab nations refused to sell to countries that had expressed support for Israel in the Arab-Israeli war of October 1973.

Within a few months, the price of oil went from around $3 a barrel to about $12. That sounds like a bargain, compared with just over $70 in April 2006. But expressed in today's dollars, the price went from around $10 a barrel to $40 a barrel. That's a huge increase and the impact on the global economy was devastating.

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