Edwin l drake parents12/29/2023 ![]() ![]() Stage 5 is when prices collapse, leading to contraction in the oil industry, followed by a return to Stage 1. In Stage 4, high prices put a dent in demand, and as new projects come online, production outpaces demand. As companies earn greater revenues in Stage 3, they increase investment in new projects. In Stage 2, demand grows faster than supply and prices begin to rise. Stage 1, the bottom of the cycle, is characterized by excess supply, which leads to lower prices and under-investment by the industry. ![]() He identifies five stages to the oil industry’s boom-bust cycle: ![]() Robert Rapier, writing for Financial Sense Wealth Management, says the cycle is a result of the industry’s dependence on capital and the time it takes to execute projects. But demand continued to rise, sending prices soaring, attracting more investment and triggering overproduction (a boom) and another bust. The first price bust occurred a little over two years later, in November 1861, because companies produced more oil than the market could handle. This led to an “oil rush,” with a great wave of investment in drilling and refining oil from the western Appalachian mountains. Drake made the first successful use of a drilling rig on a well drilled specifically to produce oil on August 27, 1859, near Titusville, Pennsylvania. Price volatility has been a hallmark of the oil industry essentially since the first oil well was successfully drilled in the United States. Workers add drilling pipe at a well in Seminole oil field, Oklahoma, 1939. ![]()
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