Source: Federal Reserve Bank of St. Louis. http://research.stlouisfed.org/fred2/series/OILPRICE/downloaddata?cid=98

The Third Oil Shock: West Texas Intermediate, Monthly Nominal Spot Oil Price (1970-2009)

Oil price changes tend to be sudden, a shift commonly labeled as an oil shock. 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 the price level they created tended to endure. For instance, it took about 6 years after the Second Oil Shock to have a supply 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 decline in the output of several mature oil fields, such as the North Sea and Mexico. 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 to December 2008). The main reason of the sharp decline was a global recession, cutting existing demand and expectations of additional demand.

The current situation, in spite of a decline in the demand, underlines forces that interact to create an environment involving higher oil prices; in recent years supply had difficulties to keep up with the demand. Peak oil is what it means, a physical inability to provide a higher level of oil supply. It must also be considered that rising oil prices are 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 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 August 1998	Debt defaults / Non-USD currency devaluations / Reduced demand	From $25.17 to $14.08 (-44.1%)
"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	Peak oil / Rising demand / Monetary debasement / Speculation	From $32.15 to $133.95 (+316.6%)
Financial Crisis of 2008 (D)	July 2008 to present	Collapse of asset bubbles / Demand destruction / Global recession	From $133.95 to $41.02 (-69.4%; Dec 2008)