Crude Oil Pricing

The price of Crude oil has the potential to affect each and every person’s life. The crude oil prices generally behave with as much swings, due to the effects of supply and demand- as does other commodities, but because oil consumption has become such an unavoidable necessity for most of us, any rise in its prices affects us deeply.  The price of crude oil has a cycle, which at times, extends over many years depending on the consumer demand and the supply, both by the OPEC (Organization of the Petroleum Exporting Countries)

The most common form of expressing the price of crude oil is the price of a barrel of oil (about 42 US gallons, which comes to a volume of 159 liters). This barrel price is hugely reliant on both the grade of oil (which in turn depends on aspects like sulphur content and its specific gravity / API) and the location. The bulk of crude oil is not traded on an exchange. Rather an OTC (over-the-counter) system is in place, usually, using a marker oil grade as a reference, which is quoted through various pricing agencies like Platts, Argus Media Ltd, etc

The price associated with the petroleum industry in the USA has always been greatly regulated by means of production / price controls, right through most of the 20th century. After the World War II, the U.S. oil prices averaged around $24.98 per barrel. In those days of nil price controls, the U.S. price would end up tracking the world price average as  $27.00.

On March 28, 2000 the $22-$28 price band was adopted for the basket of OPEC crude, oil prices, which exceeded the $ 24.00/barrel mark only in situations of armed conflict or war in the Middle East region.  But now with limited standby production capacity, the price band was abandoned by the OPEC in 2005 leading to a free surge in the global oil prices, similar to those in the late 70s, which even the OPEC, was not able to control later on.

January 1999 saw an incredible low price point of $8 per barrel, due to the amplified oil production by Iraq. A rapid increase in prices followed, which reached $35 by September 2000, followed by a brief fall in 2001, before increasing again to $40 - $50 by September 2004. This continued well into 2005, with an increased demand for gasoline, in spite of the increased costs. A high of $77 in June 2006 was followed by a drop to $63 in December the same year.

The mark crossed $80 a barrel in September 2007. This was basically a result of various factors like the OPEC announcing a lesser than anticipated output increase, lowering of US stocks, and attack on Mexican pipelines by leftists. Tensions in Turkey and the weakening of the US dollar further increased the price to breach the $90 mark in the next month. On January 2, 2008 the price breached the $ 1000 for a brief period before coming down. Finally a huge surge saw the price crashing through the $110, $ 125 barriers in quick succession, finally crossing the $130 mark on May 21, 2008. The tend is expected to continue and breach $ 200 by the end of 2009.