From Guest-Blogger Iannick Gagnon: Oil — Indians and Refiners
Let us briefly wrap our heads around the main points of our last article Oil: The First Shock. When the first oil well was drilled, its produce could be sold for something around $20 a barrel, which corresponds to roughly $500 in today’s money. Shortly after, thousands of new rigs were built and the markets were saturated with oil, i.e., supply outpaced demand, driving the prices all the way down to $0.10/bbl. The drilling business became unprofitable and people closed their taps. The demand for oil increased significantly during the Civil War (1862-1865), and due to low supplies, prices reached $80/bbl or around $1900 in inflation-adjusted terms. After the war, demand slumped and prices eventually fell to its previous low levels.
There are two things that, in our opinion, are very important to discuss about the period between 1859 and 1865 because they will help you understand similar events that will be discussed in the future. The first point we want to make is about the oil industry in general. It requires capital, lots of it. (more…)