The third oil price surge – What’s different this time?

The period from 2003 to 2008 was marked by an oil price increase comparable to the two oil price crises in the 1970s. This paper looks in detail at the situation of the oil price crises 30 years ago and compares them along various aspects on the demand and supply side with the recent price increase to identify similarities and differences. While both oil price crises in 1973 and 1979/1980 were ultimately caused by supply actions of members of the Organisation of Petroleum Exporting Countries (OPEC), all three oil price crises were preceded by high demand growth. Other aspects that favoured a high oil price in all three cases were low investments in new oil fields, as a consequence low spare capacity, and a weak US dollar. In addition, the recent oil price surge has been characterised by a high global refinery utilisation and refineries that did not adapt fast enough to the rising demand for lighter oil products. Moreover, broader geopolitical uncertainties, combined with risks associated with the oil trade helped push the oil price into a triple-digit zone. Speculation played only a limited and temporary role in accelerating price movements during the recent price increase.