A Quick History of War, OPEC, and Gas Prices

Historical trends in gas prices can largely be explained by changes in supply and demand. Demand for oil rose through the 20th century. Although this put upward pressure on price, supply initially increased even more rapidly as people produced newer and less expensive production methods. Professor Art Carden shows how oil prices changed based on various events that caused shifts in the demand and supply of oil.

Political events, economic growth, and international conflicts, among other things, affect the supply or demand of oil. These, in turn, contribute to the prices we see at the pump. Prof. Carden offers several examples, including the following:

–          The 1973 Yom Kippur war led to decreased supply as oil producers cut production to punish countries that supported Israel: prices rose.

–          Iran’s revolution in 1979 and Iraq’s invasion of Iran in 1980 decreased supply: prices rose.

–          The East Asian crisis led to a reduction in the demand for oil: prices dropped.

–          Surging economies in China and India in the last decade combined with political instability in the Middle East have increased demand for oil and decreased available supply: prices rose.

Should we be worried that we’ll run out of oil? Prof. Carden thinks not. He argues that prices, profits, and losses provide incentives for innovation and improvements. “People are pretty clever,” he says. “They come up with innovative and ingenious ways to solve problems every day.”

8 Comments

  1. Matt Wavle

    We should be developing our own sources of oil, like in Alaska, and remove the control from the hands of others.

  2. citizen1111

    I agree.  I would also say that an "all of the above" approach with regard to oil, natural gas, solar and wind would get us closer to true energy independence faster.

  3. Spencer Long

    We have uncovered the largest group of satellite oil fields near the antarctic. Oil prices should go down once these are tapped into, but the problem is, who deserves the right to these oil fields? The revenue will be substantial and continous. There will be conflict.

  4. littledeaths

    I think fracking has also helped a lot, though the true answer is to leave the duties of the EPA at the state level. This would create a larger market and produce better legislation.

  5. asexymind

    Not only does the fact that resources are a function of demand lead us to find more of what we currently need, it also leads us to develop new resources as our demand increases. Innovation is the throttle of resourcefulness. Innovation is the creation of wealth.

  6. Justin Jones

    Can’t really do the all of the above approach it isn’t very efficient. Wind and solar energy are no where near efficient enough to power things full time. That is why you see a ton of wind turbines in a particular location, solar panels are the same.

  7. jcrescenzo

    The free market and competition will solve the issue of alternative energy sources. The issue is more big government and regulations will not help find alternatives.

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