.As the global economy expands, so does demand for crude oil.The authors note that the price of oil has also increased at times due to greater "demand for stocks (or inventories) of crude oil.To guard against future shortages in the oil market. Historically, inventory demand has been high in times of geopolitical tension in the Middle East, low spare capacity in oil production, and strong expected global economic growth."In particular, political events can have a strong influence on the oil price. Historical examples include OPEC’s 1973 embargo in reaction to the Yom Kippur War and the 1979 Iranian Revolution. Financial analysts and academics have had very few tools to study such political events compared to what is available on economic aspects of oil price formation.The PRIX index was developed in attempt to fill this gap with a metric on political developments and corresponding export trends from world’s 20 largest oil exporters.The supply of oil is dependent on geological discovery, the legal and tax framework for oil extraction, the cost of extraction, the availability and cost of technology for extraction, and the political situation in oil-producing countries. Both domestic political instability in oil producing countries and conflicts with other countries can destabilise the oil price. In 2008 the New York Times reported, for example, in the 1940s the price of oil was about $17 rising to just over $20 during theKorean War (1951-1953). During the Vietnam War(1950s - 1970s) the price of oil slowly declined to under $20. During the Arab oil embargo of 1973—the first oil shock—the price of oil rapidly rose to double in price. During the 1979 Iranian Revolution he price of oil rose. During the second oil shock the price of oil peaked in April 1980 at $103.76. During the1980s there was a period of "conservation and insulation efforts" and the price of oil dropped slowly to c. $22. It again reached a peak of c. $65 during the 1990 Persian Gulf crisis and war. Following that, there was a period of global recessions and the price of oil hit a low of c. $15. before it peaked at a high of $45 on September 11, 2001only to drop again to a low of $26 on May 8, 2003.The price rose to $80 with the U.S.-led invasion of Iraq.By March 3, 2008 the price of oil reached $103.95 a barrel on the New York Mercantile Exchange.
Although the oil price is largely determined by the balance between supply and demand—as with all commodities—some commentators including Business Week,the Financial Times and the Washington Post, argued that the rise in oil prices prior to the financial crisis of 2007–2008 was due to speculation in the futures markets.