Someone please help me to understand the following:
Using general numbers, a barrel of crude is now currently hovering in the $50 per barrel range (a little under) and was previously topping out at over $100 per barrel.
Yet after doing some reading on the 1973 Oil Crisis, I learn that a barrel of oil topped out at around $12 per barrel in early 1974 - the height of the crisis. Adjusted for inflation that equates to approximately $62 per barrel in 2014 dollars. So why was there so much panic and hysteria in 1973, most of which was not seen in the post 2005 years of $100 oil?
I was too young to have “lived it” in 1973, but the pictures of 50 car lines at gas stations and people “hanging out” in the middle of empty highways tell a very different story than in 2005. My only conclusion was that in addition to the “price” of oil, the REAL scare was the “scarcity” of oil (i.e. you could not find any gas hence the long lines).
But if this was the case, then why would oil have topped out at $62 per barrel in inflation adjusted 1973 dollars? One might think that if the country thought the “Mad Max” days of gas as valuable as gold days were here, oil would be MUCH more expensive.
Oil was much more heavily regulated in 1973 than today. There were government price controls on domestic oil, and import quotas on imported oil. When the market price rose above the regulated price, the quantity demanded at the regulated price exceeded the quantity supplied and shortages were inevitable.
I was only 11 at the time, but the sudden reality that cheap oil was over with and OPEC was going to call all the shots regarding supply management was brand new and scary.
Oil wasn’t really thought of as a finite commodity; we all assumed the supply to be unlimited and suddenly we were being told that wasn’t the case.
Also, don’t forget the cost of oil went from something like $1.20 a barrel to $12/barrel.
It’s not the relative price, it’s the fact that the cost of a basic staple of the economy suddenly cost significantly more. I don’t recall the exact changes, but gasoline went from somewhere around 40 cents a gallon to around a dollar quite quickly too. If gas had gone from $4 to $8 a gallon, imagine the Chicken Little action you’d see today. (like it almost did in 2008)
The price of oil skyrocketed overnight. According tothis chart it went from $18.87 in July 1973 to $22.19 in October, to $21.91 in December and $50.94 in January.
As if more than doubling the price of oil over the holidays wasn’t enough, 1973 was also the year of crop failures, which boosted the cost of cattle production. Even after the price went up by about 25%, cattle growers still couldn’t make a profit, and reduced their herds, which sent the price of beef at the supermarket way up.
For point of reference, minimum wage in 1973 was $1.60/hr.
Going from 40 cents to a buck is like it going from $4 to $10 a gallon. That 60 cents was a significant jump in '73. And remember, few cars got better than 15 miles per gallon, most got far worse. So having the price of gas go up 150% was a major economic blow to a lot of people.
It wasn’t just the sudden awareness that oil could run short. It was also the sudden awareness that OPEC could cut us off.
It’s worth noting that Japanese car imports first began seriously threatening domestic car manufacturers right around this same time.
Americans of that era might have thought about military threats like the Soviet Union but we considered ourselves immune to economic threats. We never considered the possibility that other countries could cause us any serious economic harm.
Another thing to consider is that a lot of people in the 70’s thought the energy crisis was basically a hoax. The price jump during the '73 crisis wasn’t huge (about 50 inflation-adjusted cents according to this chart), but when the immediate political causes of the crisis were resolved and the shortages ended, prices didn’t really come down and in fact continued creeping up until they really skyrocketed during the '79 crisis. In hindsight, what was going on was that these two discrete politically-driven crises were essentially laid on top of some broader fundamental changes in the global oil industry, but to many American motorists who hadn’t seen a major change in the nominal price of gas since WWII it looked like the oil companies using the political crises as a pretext to push prices up and leave them there.
By the time the 2000’s energy crunch came along, people were more accustomed to the idea that supply and demand affects the price of oil and thus gasoline. While there was still plenty of grumbling about it, it was more of a grudging “what are you gonna do about it?” than the idea that there was something sinister going on.
There was a police officer I used to know who was in the U.S. Navy at the time of the crises. He insists that he saw dozens of oil ships off the coast just sitting there for weeks. Whether those are the kind of ships he saw I know not. I kind of assumed being in the navy he’d know the difference.
Is it possible the tankers were partially mothballed because the oil embargo decreased the total volume of oil moving from overseas/the Middle East?
Then the owners of the ships might have chosen to put them at anchor with minimal crews in order to save money until the flow of oil across the seas increased and the tankers would be needed to transport the additional volume across the sea.
It seems totally reasonable to me that there would be extra oil tankers sitting at anchor near the coast during an oil embargo - but the tankers would be mostly empty rather than evidence of a conspiracy.