Oil at $67 a Barrel?

I just noticed that the price of crude oil topped $67 a barrel.  When the fuck did that happen?

In the early 1980’s, my first programming job (when I was in high school and a freshman/sophomore in college) was for a software company in Dallas called Petcom Systems.  I was the first non-founder programmer (it was started by a husband and wife team) and I wrote “Oil and Gas Economic Analysis Software” (called PCEconomics) and a Well Log Analysis Program (called PCLog).  I also worked on their Oil and Gas Accounting Product (PCAccounting) which was my first intimate exposure to the thrills of accounting software  I got paid $10 / hour plus 5% of revenue for the software I wrote, which turned out to be a suitably large number for an 18 year old in 1983 and 1984.  I watched Petcom grow from the four of us (husband, wife, me, secretary) to 20 people as they rode the early 1980’s oil boom.

In the spring and summer of 1985 the price of oil fell apart.  Petcom’s phones stopped ringing.  50% of their customers went out of business as their cost structures had expanded under the assumption that the price of oil would stay at its artificial high.  By the end of the year, Petcom was back down to about four people.  Two years later they had transitioned their products (essentially repurposing their accounting software) to be “point of sale for CD / video stores.” Ironically, Petcom’s primary competitor was another Dallas-based company – a small public company called David P. Cook & Associates that morphed into Blockbuster.

No one expected any of this (when I went to college, I was naive enough to believe people when they said “the real estate and oil economy of Dallas will keep it going forward forever”), and I had my first “boom and bust cycle” experience.

Oil price

This is going to end badly.

  • Dave Jilk

    It will end badly for some, and well for others.

    It seems to me that higher gas prices will cause people to use less gas…simple economics. Isn’t that a good thing? If the impact of higher pump prices is that people buy fewer huge SUVs, start to buy hybrids in serious quantities, and automakers finally come out with fuel cell vehicles, that will put us on a better long-term path, no? Everyone (at least in Boulder) whines about how we use so much oil and we’re running out and we’re polluting… well, the only (free market) way to stop that is to have higher prices!

    The cycle we have been in since the early 70s is as follows: (1) we increase our use of oil over time, (2) our dependence on foreign oil imports reaches some critical point, (3) there is a price shock [that's where we are now], (4) we reduce our use of oil for a time.

    Note, by the way, the interesting impact on pump prices. How can it be, that gasoline prices are only about double, when the price of the oil has gone up 4x? Two things — first, the oil is of course not the only input cost: refining and transportation contribute significantly. Second, gasoline taxes are a fixed amount per gallon, not a percentage. Prior to the price shock, gas taxes were half or more of the price of gasoline at the pump. So if it was $1.20 before, and the price of the actual gasoline triples, you’re really only looking at $0.60 + 3 x ($0.60) = $2.40 (the current price of gas).

  • http://prometheus.med.utah.edu/~bwjones/ Bryan William Jones

    Hey, I still have young eyes, but a more legible graphic would be nice.

    Back on topic: Of course the price of gas is driving companies already in dire economic straights into bankruptcy. I am specifically thinking of Delta airlines and a couple of shipping companies. I don’t know if this is a good thing or bad, but I would believe that in the short term, it is absolutely bad.

    Alternatively, it could get more people out of their cars and onto bikes which would be a good thing for just about everybody involved including the auto industry right now.

  • http://www.geniusnow.com Greg Burton

    When did it happen? Today. Yesterday it hit a high of 66. Monday at 68? Hard to say with the fluctuations, but the trend is still, definitely, up.

    And Dave, it’s not just Boulder where people are talking about it. Had an interesting discussion with a conservative South Texas MD yesterday – he and his friends are parking the pickups and SUVs, trying to sell them now.

  • http://www.agileprogrammer.com/eightytwenty/archive/2005/08/12/6819.aspx Eighty-Twenty

    The Price of Oil in China

  • http://www.attention.ai Ian Wilson

    I think the interesting point this time around is that this does *not* seem to be a “shock”, unlike the previous 50 years price spikes. Instead price is increasing in line with reducing supplies (long term) and, potentially unprecedented, increasing demand.

    This could indicate a fundamental shift in the oil economy with higher prices from this point onwards. With the rising middle classes in India and China the adoption of the automobile will naturally increase. This will be a 20 – 30 year trend and by that time oil reserves will be dwindling. Add to that industrial consumption increases globally and there are a number of factors there that could conspire to part you from your SUV and invest in clean energy.

  • alf

    Hey guys, 67 is not too much in real terms. Pricing was 30-40 dollars a barrel in the 70s.Inflation works like that. Do the math!

  • http://www.goldsys.com Don Gau

    In inflation adjusted terms, at $67 it is still cheaper than it was in 1980 after the start of the Iran-Iraq war which I think works out to about $80 if I remember correctly from recent readings.

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