Publications: Notes at the Margin

The Eighth Oil Price Spike in Fifty Years (May 7, 2018)


Seven oil price shocks have occurred since 1973. The eighth is happening now and will likely worsen over the next two years. Indeed, the magnitude of the eighth shock and its economic consequences appear certain to be greater than the seven prior episodes. Furthermore, the nature of the current crisis renders the traditional "safeguards" of consuming governments and the International Energy Agency impotent. Strategic stocks, for example, will be useless.


The factors behind the ongoing supply disruption and subsequent price rise are numerous. The contributors include the prolonged production limits imposed by oil-exporting countries in 2017, the collapse of Venezuela’s oil production, the schizophrenic views of large Wall Street investors regarding oil producers and consumers, the cyclical investment strategies of speculators, inflexible environmental regulations, an untimely move away from renewable fuels, and prospective declines in Nigerian output. These developments alone are enough to send prices spiraling upward. Add to them the marine fuel regulation adopted by the International Maritime Organization, which requires ships to use fuel containing less than 0.5?percent sulfur, and we could be in store for the greatest market price disruption ever.


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