Source: Federal Reserve Bank of St. Louis.

West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2013)

Oil price changes tend to be sudden, a shift commonly labeled as an oil shock. There are also counter shocks where for various reasons, such as an oversupply or a recession, the price of oil experiences a sudden decline. Under the gold standard (US dollars redeemable for gold) that prevailed until 1971, oil prices were remarkably stable. The first two oil shocks, as well as the First Gulf War (1), were linked with geopolitical events that were short lived but with an enduring effect on the price of oil. For instance, it took about 6 years after the Second Oil Shock to have an oversupply-based counter shock (A). A third oil shock that began in late 2003 has unfolded with prices quadrupling as of June 2008. Unlike the two previous oil shocks, geopolitics played a more limited role as the surge in oil prices corresponded to a growing demand from emerging economies and a decline in the output of several mature oil fields, namely in the North Sea and in Mexico (Cantarell). Yet, the Third Oil Shock was immediately followed by a strong counter shock that led to a price retrenchment of 69% in the following months (September 2008 to February 2009). The main reason of the sharp decline was a global recession, cutting existing demand and expectations of additional demand. Since 2009, oil prices have converged to a new price level hovering between 80 ad 100 dollars per barrel. This new price level has incited substantial investments in alternative sources of energy as well as non conventional sources such as oil sands and shale oil. Producers that were in decline, such as the United States, have even seen a growth in domestic oil production.

There are several forces that interact to create an environment involving higher oil prices. In recent years supply had difficulties to keep up with the demand. There are also concerns about peak oil which is a physical inability to provide a higher level of oil supply due to less recoverable reserves as well as greater technical difficulties to extract existing reserves. It must also be considered that rising oil prices are also the outcome of the systematic debasement of most fiat currencies through the inflation of the money supply, this in addition to any physical shortages (the current environment appears to be compounding both). So, even if a resource such as petroleum could be supplied adequately, monetary policies followed by most central banks and governments guarantee higher nominal energy prices, particularly if measured in US dollars.

The table below underlines the events that had the most significant impacts on oil prices.

Price Change Event	Price Change Time Frame	Cause	Nominal Price Change
First Oil Shock	October 1973 to March 1974	Yom Kippur War / OPEC oil embargo	From $4.31 to $10.11 (+134.5%)
Second Oil Shock	April 1979 to July 1980	Iranian revolution (1978) / Iran-Iraq war (1980)	From $15.85 to $39.50 (+149.2%)
Oil counter shock (A)	November 1985 to July 1986	OPEC oversupply / Lower demand	From $30.81 to $11.57 (-62.4%)
First Gulf War (1)	July 1990 to November 1990	Iraqi invasion of Kuwait	From $18.63 to $32.30 (+73.4%)
Asian Financial Crisis (B)	January 1997 to December 1998	Debt defaults / Non-USD currency devaluations / Reduced demand	From $25.17 to $11.28 (-55.1%)
"Asian Demand Contagion" (2)	January 1999 to September 2000	Rising demand / OPEC output cutbacks	From $11.28 to $33.88 (+200.3%)
"September 11 Effect" (C)	August 2001 to December 2001	Oversupply / American recession	From $27.47 to $19.33 (-29.6%)
Third Oil Shock	December 2003 to June 2008	Rising demand / Monetary debasement / Speculation	From $32.15 to $133.95 (+316.6%)
Financial Crisis of 2008-2009 (D)	July 2008 to February 2009	Collapse of asset bubbles / Demand destruction / Global recession	From $133.95 to $39.16 (-70.7%)