What Are the Causes of Oil Boom Markets and Why Do They Crash?
When oil supply is higher than oil demand, we see a bust in oil prices.
When demand is higher than supply, we see a boom. Many times, these booms come from a disruption in supply cause by war. In 1861, the U.S. Civil War increased demand for oil lubricants and solvents as the need for wagons, guns, cannons, and ammunition increased. At the end of the war, demand for those products fell sharply. And oil prices did the same . They declined from around $8 in 1864 to $0.67 in 1887 .
The first boom and the first bust.
By the 1880s, the U.S. produced 85% of the world’s oil – 64 million barrels of oil per year. It was used to make kerosene, lubricants, and stove fuels. But abundant supplies and limited use kept oil prices low.
That began to change with the invention of the low-cost, mass- produced Ford Model T in 1908. Two years later, gasoline overtook
20
Made with FlippingBook - Online Brochure Maker