In days of old, when knights were bold, and oil exchanges were not invented, prices were steady, supply was plenty, and Big Oil kept drivers contented.
Before the first Energy Crisis started in 1970, the oil industry was run
In days of old, when knights were bold, and oil exchanges were not invented, prices were steady, supply was plenty, and Big Oil kept drivers contented.
Before the first Energy Crisis started in 1970, the oil industry was run by major integrated oil companies. They explored for, developed, and produced oil fields, refined the oil, and sold their products through their own outlets to consumers. The most obvious sales point was gas stations. They priced their products competitively with each other.
All other prices were backed up from the retail prices. All the exploration, drilling, production, refining, and transportation had to be within a cost structure within the retail price. Posted oil prices were used for buying oil from independent producers, accounting for transfers between subsidiaries of integrated companies, and for intercompany transactions to balance market demand with supplies in various parts of the U.S. and the world.
The producer-country governments took control of operations from oil companies to kick off the 1970s energy crisis. They demanded much higher prices than the oil companies had paid so they took over selling their own oil. They had no market system, however; they did not know who or where the buyers were at any given hour.
On the other hand, the industrialized economies and developing countries alike suddenly had to buy their own supplies. But there was no longer a managed supply system, no central market. Buyers did not know where the oil supplies were, who had them, or what the price was. Buyers and sellers did not know how to access each other or deal as the entire system disintegrated into a dynamic, fast-moving, dispersed spot market. Turmoil, chaos, and confusion followed. No one was in control. Consuming countries panicked.
Enter the oil traders. Previously operating on the fringes of the industry, oil traders suddenly became the main intermediaries because they knew who might be selling and who might be buying at any given moment and they could deal quickly because they knew each other’s voice on the phone. To say these were colorful people is an understatement. The biggest Rolodex belonged to a former Phibro trader, Marc Rich, who became the King of the Spot Market because he was the biggest and most notorious player who put together buyers and sellers in deals no one else could or would.
With high and increasing oil prices worldwide and price controls at home, small and midsize American oil c