William DeMis¹
(1) Marathon Oil Co, Midland, TX

Abstract: Historical analysis of real global price of oil: Implications for future prices

Traditional analyses of oil prices show a “constant price” corrected using the U.S. consumer Price Index. The Real Global Price of oil is the price corrected for inflation and for fluctuations in the U.S. dollar’s value relative to a weighted basket of currencies. The Real Global Price of oil is a more accurate measure of oil’s value on global markets over the past 30 years.

Since the U.S. abandoned the Bretton Woods agreement in 1971, the value of the U.S. dollar has varied sharply on global markets; gaining or losing as much as 35%. OPEC countries obtain 80-90% of their revenue from oil sales that are priced in U.S. dollars. Changes in the U.S. dollar’s value can affect OPEC’s purchasing power, almost as much as changes in nominal prices.

When the value of the U.S. dollar drops and the Real Global Price falls, as happened in 1973, 1979, and 1995, OPEC has reacted with supply cuts, price increases, and/or calls to abandon the U.S. dollar as the basis for pricing oil. In June, 1995, the U.S. dollar sank to all-time lows. OPEC ministers openly called for abandoning the U.S. dollar. Oil price increases followed. Recent oil price lows of 1997-98 were not sustainable because the Real Global Price of oil fell below the previous all-time low set in 1973. OPEC countries are now dependent on oil revenues to fund large social programs and a growing middle class – expenses that did not exist in 1973. (The opinions herein are solely the author's and do not reflect Marathon Oil Company's opinions).

AAPG Search and Discovery Article #90914©2000 AAPG Annual Convention, New Orleans, Louisiana