Before the Industrial Revolution, agricultural products like wheat and coffee dominated the commodities market. However, things have changed, with crude oil becoming by far the most actively traded commodity available today.
This does not come as a surprise if to consider that oil has an impact on almost every aspect of our lives and the overall global economy: from consumer goods themselves to their production and transportation.
For that, crude oil trading offers solid opportunities to profit in almost all market conditions. As volatility in the energy sector has increased dramatically over the past couple of decades, it provides strong trends that can produce consistent returns for both long-term investment strategies and short-term swing trades.
In this article, we take a look at the historical crude oil price trend and review the periods when the commodity fluctuated the most. In addition, you will find a video where our chief market strategist David Jones gives the latest crude oil price technical analysis and suggests some up-to-date trading tips.
Why does crude oil price fluctuate?
Just like other commodities, the laws of supply and demand play a major role in oil pricing. Over recent years, a few new resources have been developed, including US shale oil and Canadian oil sands, adding to the global supply and exerting a downward force on prices.
However, these are not the only factors that have a great impact on the commodity’s pricing. Crude oil trades in a very volatile environment, where the market tends to move on investors’ emotions. Some major events can happen overnight, leading oil prices to swing widely and often unpredictably. Whether it is a disappointing economic report or escalating tensions in the Middle East, traders always react swiftly on the news, adjusting their strategy according to price fluctuations and magnifying them further.
For decades, international conflicts and wars have been one of the key drivers of the crude oil price swings.
War and the market: crude oil price history from 1863
Watching the most recent escalation of hostilities between the US and Iran simmering down, we have decided to go back in time and see how crude oil prices behaved during the periods of prolonged conflicts and wars, especially those in the Middle East region.
As crude oil price history suggests, the commodity has witnessed many turbulent periods marked by a series of major economic crises, international conflicts and wars, all of which would have a significant bearing on its prices. Let us recap some of these.
For example, the First World War boosted global demand for oil, doubling its prices from $0.81 per barrel in 1914 to $1.98 in 1918. After the war ended, demand continued to rise due to the growing popularity of automobiles, with the consequent gasoline shortage in the US west coast in 1920. Prices soared to $3.07 per barrel just to retreat and stabilise at around $1.61 as soon as production increased.
In 1930, the discovery of oil in East Texas was one of the key events of this time as it led to the creation of an oil surplus that happened to coincide with the Great Depression. This, in turn, depressed prices from $1.19 in 1930 to $0.65 in 1931.
Just like its predecessor, the beginning of the Second World War in 1939 helped increase demand and drive up prices. However, this time around, the effect was less pronounced due to the larger global supply.
In July 2000, crude oil price stood at $28.38 per barrel. However, when the US invaded Iraq in 2003, the market faced oil supply uncertainties. This was further compounded by soaring demand growth in Asia, China in particular, sending the commodity’s value to hit its record highs.
Prices skyrocketed to $146.02 in July 2008, led by the unrest and consumer fear about the wars in both Iraq and Afghanistan. However, due to the infamous global financial crisis that happened the same year, oil prices fell sharply, collapsing to $32 by December.
The Arab Spring of 2011 created another supply shortage, helping prices to jump up to $126.48 per barrel.
Do you want to learn more and find out how to profit off the volatility? Wondering what the latest crude oil price analysis looks like? Watch David Jones, chief market strategist at Capital.com, make his own crude oil historical price analysis and review the commodity’s most recent performance:
Always stay on top of the latest crude oil price news by subscribing to Capital.com’s YouTube channel.
Where to next: what waits for the oil market beyond the US-Iran tensions?
One of the most recent and biggest daily price rallies occurred earlier this year, when several drones and missiles attacked oil processing facilities in Saudi Arabia. When the exchanges opened on Sunday night, oil surged some 20 per cent.
On the other hand, the assassination of Iran’s top military commander, Qassem Soleimani, by the US and the following escalation of the conflict between the two countries did not cause dramatic turbulence in the commodity’s price. Over a few days, crude oil went from $60 per barrel to $65, before dropping back to $58.
Typically, should oil prices spike, then it is very likely that they will fall sharply once the conflict is resolved. However, witnessing the global economic and political uncertainty, it may be rather hard to predict what may happen next in the international arena. For that, headline risk is something oil traders should keep in the back of their mind. While such events usually offer some great volatility, they are also very risky.
Do you think there will be a more serious conflict to impact the oil price in 2020? What is your forecast for crude oil?
Trade US Crude Oil Spot CFD
Follow Capital.com to get updates on the latest crude oil market analysis and spot the best trading opportunities.