Traders worried about supply disruptions in the Persian Gulf, and this fear allowed for a "risk premium" to be added to the price of every barrel, regardless of actual shortages. Furthermore, the search for yield in a low-interest-rate environment led hot capital to flow directly into oil futures, treating the black gold as a liquid asset class rather than a physical commodity used for energy.
Oil Price History 2008: Key Events and Price Drivers
Geopolitical Tensions and Market Psychology The psychological component of the 2008 rally should not be underestimated. The Inevitable Correction While the fundamental factors of peak oil and rising demand provided the foundation for high prices, the market’s extreme volatility in 2008 made the spike unsustainable.
The memory of the 1970s oil shocks was still fresh, and headlines regarding conflict in the Middle East—specifically the tension between Israel and Hezbollah in 2006 and the ongoing strife in Iraq—created a persistent cloud of uncertainty. The supergiant fields discovered in the mid-20th century, such as Mexico's Cantarell and the United Kingdom's North Sea, were entering irreversible decline.
Oil Price History 2008: Key Events and Price Drivers
The sharp global recession that began in the third quarter of 2008 dramatically reduced industrial activity and transportation demand. For decades, the price of crude had been suppressed by a persistent oversupply relative to demand, but the dynamics shifted dramatically in the mid-2000s as the world’s largest oilfields entered a period of natural decline.
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More perspective on Why was oil so high in 2008 can make the topic easier to follow by connecting earlier points with a few simple takeaways.
