Pandorra

WTI Crude Oil All Time Chart. Does History Repeat Itself..?!

TVC:USOIL   CFDs on WTI Crude Oil
I'm writing this article, because of the striking resemblance with Today's oil and the one that has been a lot of times before..

I believe that history repeats itself, and there are lessons to be learned. And since this boom and bust cycle are not new, it might also provide some understanding on where we are heading.
I hope you enjoy.

The time of dinosaurs

In the 1850s the whale fisheries had failed to keep pace with the mounting need for illuminating oil, forcing the price of whale oil higher and making illumination costly for ordinary Americans. Only the affluent could afford to light their parlors every evening.

There were many other lighting options such as lard oil among others but no cheap illuminant that burned in a bright, clean, safe manner.
George Bissell, considered as the father of the American oil industry, had the intuition that oil that was plentiful in western Pennsylvania could be a first rate illuminant. The slimy liquid was so ubiquitous that it tainted well water and plagued local contractors drilling for salt.

In 1855, Professor Benjamin Silliman from Yale produced a report that vindicated Bissell's hunch that oil could be distilled to produce a fine illuminant (like kerosene), plus a host of other useful products. As a result, Bissel and his company, Seneca Oil Company (formerly the Pennsylvania Rock Oil Company) needed to dispatch someone to Pennsylvania to look for large pools of oil.

First oil drilled in America

That man was Colonel Edwin Drake, known as the first to successfully drill for oil. Drake arrived in Titusville, Oil Creek Valley. Oil was known to exist here, but there was no practical way to extract it. Its main use at that time had been as a medicine for both animals and humans. Natives used it for war paint and for soothing skin liniment. It took a couple years but Drake struck oil in 1859.

This was the beginning of a pandemonium. Bands of fortune seekers and speculators streamed into Titusville and other oil-related businesses quickly exploded on the scene.
I guess we can call this the Klondike of oil, as a beginning of Global Industrialization Era.

Mr. Rockefeller was known as the co-founder of the Standard Oil Company and was the world's richest person. Crude oil jumped multi X times in 1860s from approximately 50cents per barrel in early 1860s to over 3 dollars in late 1860s.

Additionally, I would like to note that crude oil fluctuated between $10 and 10ยข a barrel in 1860! Adjusted for inflation, Mr. Rockefeller fortune upon his death in 1937 stood at $336 billion according to Fortune (in 2008 U.S. dollars).
Similar how crypto enthusiasts built their wealth in 2010s, right? ๐Ÿ˜‰

Pump and Dump

By the late 1860s, there was a slump in the oil industry, keeping it depressed for the next five years. Low kerosene prices, a boon to consumers, were catastrophic for refiners, who saw the profit margin between crude and refined oil prices shrink to a vanishing point.

Worse, the oil market wasn't correcting itself according to the self-regulating mechanism described by neoclassical economists. Producers and refiners didn't shut down operations in the expected numbers.
John D. Rockefeller said "So many wells were flowing that the price of oil kept falling, yet they went right on drilling." Rockefeller tirelessly mocked those "academic enthusiasts" and "sentimentalists" who expected business to conform to their tidy competitive models.

One Hundred Years of Resistance for $4

According to the standard model of competition, as oil prices fell below production costs, refiners and producers should have shutdown.
But the oil market didn't correct itself in this manner because refiners and producers carried heavy bank debt and other fixed costs and by operating at a loss they could still service some debt. Each refiner, pursuing his own self-interest, generated collective misery.

Does it sound like today's crypto news, right? ๐Ÿ˜‰
The U.S. drilling activity didn't slow down after hot 1860s as much as expected and a lot of producers are still pumping oil to avoid defaulting on their loans..

There was World War I in 1914-18, and total number of military and civilian casualties was around 40 million - around 20 million deaths and 21 million wounded. ๐Ÿ˜“
There was World War II in 1939-45, and total number of military and civilian casualties estimated around 50 - 56 million.. ๐Ÿ˜“

Crude oil prices jumped again, and again. But still remained below $4 until 1970s, as there were no all time peaks in crude oil after super hot 1860s.

Money-printing Era Breaks the Rules

The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from the late 1920s to 1932 as well as from 1944 until 1971 when the United States unilaterally terminated convertibility of the US dollar to gold, effectively ending the Bretton Woods system, that has been resulted with huge inflation all over the world within further decades..

Technical pictures at the main WTI crude oil chart illustrates, oil price are on the sustainable path since then, with huge bullish accelerations within local and global conflicts, like Arab-Israeli War in 1973, 9/11 attacks in 2001 and Russia-Ukraine conflict in 2022.

Nowadays

Knee-jerk surgeโ€™ happens again, and again, so oil experts repeatedly predict market impact of new 2023 Israel-Hamas conflict.
Crude oil price sees a spike on early Monday trading Oct 9, 2023 so the overall impact of the attack on Israel by Palestinian militants Hamas has yet to consider...

In a conclusion.. Does history repeat itself..
Certainly "Yes". As lessons of history still remain unlearned.

Disclaimer

The information and publications are not meant to be, and do not constitute, financial, investment, trading, or other types of advice or recommendations supplied or endorsed by TradingView. Read more in the Terms of Use.