Transcript 38 OIL Combining Supply and Demand

OIL PRICES
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The New York Mercantile Exchange (NYMEX) is a
commodity exchange which was founded in 1978. It
handles billions of dollars worth of energy products,
metals, and other commodities that are bought and
sold on the trading floor. These products are coal,
crude oil, electricity, gasoline, heating oil, natural gas,
palladium, platinum, propane.
Commodities are bought and sold by traders and their
prices—like the price of bananas at the grocery
store— prices can change as often as a daily basis.
Traders, spend all day, researching and analyzing
current events and pricing indexes of commodities,
then forecast their value into the future. If their
predictions are on target, their profits can be
significant.
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Some key events that influenced oil prices in the past few decades are:
The Yom Kippur War of 1973 was started by an attack on Israel by Syria and Egypt,
the Yom Kippur War. When the United States and many countries in the Western world
expressed support for Israel in this conflict, several Arab exporting nations imposed an
oil embargo on nations supporting Israel, cutting off over 4 million barrles of oil. Between
October 1972 and the end of 1974, the nominal price of oil quadrupled from $3.50 per
barrel to more than $12 as a result of the curtailed oil production and supply.
The Iranian Revolution of 1979 reduced the production of oil by 2-2.5 million barrels
per day between November 1978 and June 1979. This event was the cause of the
highest price of oil in post-World War II history and was compounded by its invasion by
Iraq in September, 1980. The result of these events: worldwide crude oil production
went down by 10 percent compared to 1979 and doubled oil prices from $14 to $35 per
barrel.
The Gulf War (1990-1991) was fought to liberate Kuwait from invasion by Iraq. During
this period, crude oil prices entered a period of steady decline. In the buildup to the
invasion, Iraq and Kuwait had been producing 4.3 million barrels of oil a day. This
potential loss, coupled with threats to Saudi oil production, led to a rise in prices from
$21 per barrel at the end of July to $46 per barrel in mid-October.
The 2005 hurricane season was the most active Atlantic hurricane season in recorded
history. Because of the United States’ Gulf Coast oil extracting and refining capacity,
these storms led to speculative spikes in the price of crude oil. The damage to refinery
capacity in the United States caused gasoline to soar to record prices.