This paper explains the price of oil, in broad terms, from 1861 to 1970. Over this period the oil price was influenced by many factors, including technological progress, market forces and actions by governments and cartels. But we point to a main factor as being the amount of conventional oil (i.e., oil in fields) that had been discovered. Over most of this period the quantity of oil discovered in fields ran far ahead of demand, and this in turn led to chronic potential over-supply. A variety of methods was used by industry and by governments to try and control the oil supply, and hence to prevent the oil price from falling to ruinous levels.
To understand this potential for over-supply of oil over this period requires reliable knowledge of the rate that conventional oil was being discovered. This information, unfortunately, cannot be derived from the widely-available public-domain proved (‘1P’) oil reserves data, which have been very misleading, and instead must come from the oil-industry backdated proved-plus-probable (‘2P’) data. Accessing the latter data, however, has generally been difficult or expensive.
Examining the potential for oil over-supply also requires an understanding of the decline in the production of oil in fields that occurs typically once a region’s production ‘mid-point’ is passed. This ‘mid-point’ peak results from a region’s field-size distribution, its fall-off in discovery, and the physics of field decline.
Lack of understanding these two factors; the quantity of conventional oil discovered, and the ‘mid-point’ peak, has led in our view to incomplete explanations for the price of oil.
Bentley, R. W. & Bentley, Y. (2015) Explaining the Price of Oil 1861–1970: The need to use reliable data on oil discovery and to account for ‘mid-point’ peak. The Oil Age 1 (2) 57-83.
Download PDF – FreeCLICK HERE