So oil is pricey, you think?
It's all relative. As Venezuela's President Hugo Chavez cheerfully explained at last week's summit meeting of oil-exporting countries, a barrel of Coca-Cola would cost $78.70 and a barrel of shampoo, $2,056. At $30 a barrel, Chavez said, oil is a bargain.
The oil exporters - the Organization of Petroleum Exporting Countries - ended their meeting in Caracas with conciliatory pledges to ensure that price and supply are kept in balance - a far cry from the confrontations and embargoes of oil crises in 1973-1974 and 1979-1980.
Beginning last Saturday, the OPEC countries were to raise their production by 800,000 barrels a day. And President Clinton released 30 million barrels of oil from the U.S. Strategic Petroleum Reserve. In response, oil prices were dropping. But some forecasters continued to fear shortages of heating oil in parts of the United States this winter.
Staff writer Hal Piper of The Sun analyzes what caused the recent spike in oil prices, and the economics of oil.
Is the oil-price jump mostly hype? After all, there aren't any gas lines.
The magnitude and speed of the price increase were as drastic as those of previous oil shocks. From a low of just under $10 a barrel in December 1998, the price of crude oil spiked above $37 before backing off to about $30 last week. By comparison, oil moved from $4 to $12 a barrel in 1974 and from $12 to $38 a barrel in 1980.
But the effect on the United States, Japan and Europe has been less this time - so far. (The protests in Europe were less about the base price of oil than about gasoline taxes, which are much higher there, amounting to well over half the retail price of a gallon of gasoline.)
After accounting for inflation, oil is still only about half the price it reached in 1980: $38 then was the equivalent of about $67 now. The real story of oil prices is their long decline.
In the early 1980s some analysts were predicting that nothing could stop oil from running up to $100 a barrel. Instead, by 1998 oil was cheaper, in constant dollars, than it had been at any other time since the dawn of the automobile age.
Why was oil cheaper?
The industrial countries had learned to use oil more efficiently. Also, the new high-tech and service industries were less energy-dependent. Oil consumption actually dropped, even as economies continued to grow.
