What 50 years of oil shocks explain about the future of gas prices

When gas prices climb, we feel the difference in our wallets. But price spikes have a long history

Global events often hit drivers fast, while prices at the pump settle back over time

Here is the average price of a gallon of regular gasoline over the last 50 years

Let's first adjust for inflation and walk through the history of price swings beginning with the 1970s

In 1973, OPEC nations declared an embargo against the U.S. and other countries that had supported Israel during the Yom Kippur War

The Nixon administration capped gas prices, forcing never-before-seen lines at the gas pump

However, it's the Iranian revolution that creates the first true spike in our chart

It brought about 7% of global oil supply offline and heightened tensions in several oil-producing states

It was more of a concern that not just with Iran cutting off oil to the global market

but that others would as well, that the hostage crisis would explode into a regional conflict

exactly like we're facing today. By early 1980, the price topped $5 per gallon in today's terms

But gasoline prices dropped the following year as tensions subsided and oil production picked up

The rest of the 80s and 90s were marked by relative stability in oil markets and affordable gasoline prices, especially from 1986 onward

New oil producers outside of OPEC entered the global oil market and energy conservation efforts were fostered as a result of the oil price spikes

The highest gasoline price during this period was per gallon in October of 1990 after Iraq invasion of Kuwait At the turn of the century a new dynamic took hold

sending gasoline prices on an upward swing from the end of 2001 through 2008

We saw a significant growth in the demand for oil, mostly coming from emerging Asia, China in particular

which outpaced supply, which was stagnant over that period. That demand reached new heights in 2008

The Summer Olympics in Beijing meant China was stockpiling supply. China knew that its atmosphere in Beijing and other cities

which would be hosting the Olympics, was very toxic to athletes. And so they arranged to shut down their coal-fired power plants

and switch to fuel oil power plants. And they did this, but this required a huge amount of fuel

They bumped up demand by about two million barrels a day running up to the Olympics

And the market didn't quite see this in time. In July 2008, while oil jumped to $147 per barrel, the inflation adjusted gasoline price in the U.S. hit $6.12 per gallon

A few months later, prices tumbled. The collapse of oil prices in 2008 is indeed the direct result of the financial crisis

So there was a steep drop in oil consumption in anticipation of a major global recession

Gas prices fell to $2.62 in December 2008. But the dip was short-lived

The 2010s saw the longest sustained period of gas prices above $4 per gallon

Global oil demand continued to rise and the decade brought a new set of world events that shook oil markets It was actually a combination of robust demand from emerging markets in Asia

together with a number of geopolitical tensions, first some supply disruptions from the Arab Spring in 2011

further tensions with Iran in 2012, which kept prices elevated over a substantial period of time

At the same time, a new technique to drill for oil and gas, known as hydraulic fracturing or fracking, took off in the U.S

It made previously overlooked oil patches in places like Texas and North Dakota profitable, but only at higher global prices

The price of crude at $100 a barrel made most of these plays very economical

and they expanded. OPEC cut oil production in the first few years of the decade

which kept prices high. But the high price incentivized more production, both domestically and abroad

We say in the oil patch, the cure for high prices is high prices

In November 2014, declining prices accelerated when OPEC reversed course on oil production cuts

In the following years, U.S. gasoline prices stayed well below $4 per gallon

When COVID-19 lockdowns hit, gas prices dipped to their lowest point in 20 years

when adjusted for inflation. Oil briefly traded in the negative. That means storage facilities were full as demand sputtered to a halt

and the companies holding the oil had to pay other companies to take it off their hands

U shale drillers they got heavily burned during COVID a lot of shale companies went under The companies that survived adapted cutting risk slowing investment in new wells

and prioritizing shareholder returns as the economy rebounded in 2021 and 2022

That also pushed prices higher. Then came Russia's invasion of Ukraine. The US and European countries stopped importing Russian oil and capped the price Russia could

sell it for elsewhere. Europe and the U.S. forced Russia to find new export markets

and that led to a reshuffling of global oil flows. That reshuffling squeezed global oil supply

and brought U.S. gasoline prices to $5.62 per gallon, the third highest in 50 years

That brings us to 2026, when Iran blocked the Strait of Hormuz and Americans felt the effects

It is without a doubt the largest supply disruption in the history of global oil markets

About 20 percent of the world's oil typically flows through the strait

Some was redirected to pipelines and releases from petroleum reserves blunted the impact slightly

But about 10 percent of the world's oil supply was stuck on the wrong side of the strait

The severity of this event is not fully reflected in prices yet

So oil supplies are much tighter than what the market price currently suggests

With each dollar spent per barrel, Baumeister says gasoline prices usually go up by two and a half cents

The longer oil markets are disrupted, the higher that price can go

For Straight Arrow News, I'm Keaton Peters. For more on this story, download the Straight Arrow mobile app today or go to san.com