How OPEC Works – Why Energy Prices Rise

The following from the Department of Energy – Annual Oil Market Chronology

This chronology was originally published by the Department of Energy’s Office of the Strategic Petroleum Reserve, Analysis Division. Updates for 1995-2006 are from the Energy Information Administration. Please click here for the latest monthly chronology and for a more detailed chronology for past years.

World Nominal Oil Price Chronology: 1970-2006

The price data graphed above are in nominal terms, i.e., they are in
“dollars-of-the-day” and have not been adjusted for inflation. Clicking
the picture above will enable you to access oil prices in real terms
that are adjusted for inflation. Historical and forecast real and nominal
crude oil and gasoline price information is maintained on a more
frequent basis on the Short Term Energy Outlook Webpage.
1.OPEC begins to assert power; raises tax rate & posted prices
2.OPEC begins nationalization process; raises prices in response to falling US dollar.
3.Negotiations for gradual transfer of ownership of western assets in OPEC countries
4.Oil embargo begins (October 19-20, 1973)
5.OPEC freezes posted prices; US begins mandatory oil allocation
6.Oil embargo ends (March 18, 1974)
7.Saudis increase tax rates and royalties
8.US crude oil entitlements program begins
9.OPEC announces 15% revenue increase effective October 1, 1975
10.Official Saudi Light price held constant for 1976
11.Iranian oil production hits a 27-year low
12.OPEC decides on 14.5% price increase for 1979
13.Iranian revolution; Shah deposed
14.OPEC raises prices 14.5% on April 1, 1979
15.US phased price decontrol begins
16.OPEC raises prices 15%
17.Iran takes hostages; President Carter halts imports from Iran; Iran cancels US
contracts; Non-OPEC output hits 17.0 million b/d
18.Saudis raise marker crude price from 19$/bbl to 26$/bbl
19.Windfall Profits Tax enacted
20.Kuwait, Iran, and Libya production cuts drop OPEC oil production to 27 million b/d
21.Saudi Light raised to $28/bbl
22.Saudi Light raised to $34/bbl
23.First major fighting in Iran-Iraq War
24.President Reagan abolishes remaining price and allocation controls
25.Spot prices dominate official OPEC prices
26.US boycotts Libyan crude; OPEC plans 18 million b/d output
27.Syria cuts off Iraqi pipeline
28.Libya initiates discounts; Non-OPEC output reaches 20 million b/d; OPEC
output drops to 15 million b/d
29.OPEC cuts prices by $5/bbl and agrees to 17.5 million b/d output – January 1983
30.Norway, United Kingdom, and Nigeria cut prices
31.OPEC accord cuts Saudi Light price to $28/bbl
32.OPEC output falls to 13.7 million b/d
33.Saudis link to spot price and begin to raise output – June 1985
34.OPEC output reaches 18 million b/d
35.Wide use of netback pricing
36.Wide use of fixed prices
37.Wide use of formula pricing
38.OPEC/Non-OPEC meeting failure
39.OPEC production accord; Fulmar/Brent production outages in the North Sea
40.Exxon’s Valdez tanker spills 11 million gallons of crude oil
41.OPEC raises production ceiling to 19.5 million b/d – June 1989
42.Iraq invades Kuwait
43.Operation Desert Storm begins; 17.3 million barrels of SPR crude oil sales is awarded
44.Persian Gulf war ends
45.Dissolution of Soviet Union; Last Kuwaiti oil fire is extinguished on November 6, 1991
46.UN sanctions threatened against Libya
47.Saudi Arabia agrees to support OPEC price increase
48.OPEC production reaches 25.3 million b/d, the highest in over a decade
49.Kuwait boosts production by 560,000 b/d in defiance of OPEC quota
50.Nigerian oil workers’ strike
51.Extremely cold weather in the US and Europe
52.U.S. launches cruise missile attacks into southern Iraq following an Iraqi-supported
invasion of Kurdish safe haven areas in northern Iraq.
53.Iraq begins exporting oil under United Nations Security Council Resolution 986.
54.Prices rise as Iraq’s refusal to allow United Nations weapons inspectors into
“sensitive” sites raises tensions in the oil-rich Middle East.
55.OPEC raises its production ceiling by 2.5 million barrels per day to 27.5 million
barrels per day. This is the first increase in 4 years.
56.World oil supply increases by 2.25 million barrels per day in 1997, the largest
annual increase since 1988.
57.Oil prices continue to plummet as increased production from Iraq
coincides with no growth in Asian oil demand due to the Asian economic crisis
and increases in world oil inventories following two unusually warm winters.
58.OPEC pledges additional production cuts for the third time since March 1998.
Total pledged cuts amount to about 4.3 million barrels per day.
59.Oil prices triple between January 1999 and September 2000 due to strong world
oil demand, OPEC oil production cutbacks, and other factors, including weather
and low oil stock levels.
60.President Clinton authorizes the release of 30 million barrels of oil from the
Strategic Petroleum Reserve (SPR) over 30 days to bolster oil supplies, particularly
heating oil in the Northeast.
61.Oil prices fall due to weak world demand (largely as a result of economic recession
in the United States) and OPEC overproduction.
62.Oil prices decline sharply following the September 11, 2001 terrorist attacks on
the United States, largely on increased fears of a sharper worldwide economic
downturn (and therefore sharply lower oil demand). Prices then increase on oil
production cuts by OPEC and non-OPEC at the beginning of 2002, plus unrest in
the Middle East and the possibility of renewed conflict with Iraq.
63.OPEC oil production cuts, unrest in Venezuela, and rising tension in the Middle East
contribute to a significant increase in oil prices between January and June.
64.A general strike in Venezuela, concern over a possible military conflict in Iraq,
and cold winter weather all contribute to a sharp decline in U.S. oil inventories and
cause oil prices to escalate further at the end of the year.
65.Continued unrest in Venezuela and oil traders’ anticipation of imminent military
action in Iraq causes prices to rise in January and February, 2003.
66.Military action commences in Iraq on March 19, 2003. Iraqi oil fields are not
destroyed as had been feared. Prices fall.
67.OPEC delegates agree to lower the cartel’s output ceiling by 1 million barrels
per day, to 23.5 million barrels per day, effective April 2004.
68.OPEC agrees to raise its crude oil production target by 500,000 barrels (2% of current
OPEC production) by August 1—in an effort to moderate high crude oil prices.
69.Hurricane Ivan causes lasting damage to the energy infrastructure in the Gulf of
Mexico and interrupts oil and natural gas supplies to the United States. U.S. Secretary
of Energy Spencer Abraham agrees to release 1.7 million barrels of oil in the form
of a loan from the Strategic Petroleum Reserve.
70.Continuing oil supply disruptions in Iraq and Nigeria, as well as strong energy
demand, raise prices during the first and second quarters of 2005.
71.Tropical Storm Cindy and Hurricanes Dennis, Katrina, and Rita disrupt oil supply
in the Gulf of Mexico.
72.In response to the hurricanes, the Department of Energy provides emergency loans
of 9.8 million barrels and sold 11 million barrels of oil from the SPR.
73.Militant attacks in Nigeria shut in more than 600,000 barrels per day of oil
production beginning in February 2006.
74.OPEC members agree to cut the organization’s crude oil output by 1.2 million barrels
per day effective November 1, 2006. In December, the group agrees to cut output by a
further 500,000 barrels per day effective February 2007.
More detail for 2006 here.

Original concept for the chart was by the Analysis Division in the Office of Management Operations; Strategic Petroleum Reserve. Modified and updated by the Office of Energy Markets and End Use in the Energy Information Administration.

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