Three years ago, in an essay for Foreign Affairs, we predicted a new era of volatile oil prices. The market laughed at us: the next three years were the smoothest in decades. Oil prices, on average, moved just three percent each month and even less from year to year. The calm was so eerie that analysts began to hail a new era of oil price stability.
The past month, however, has upended that confident view. What began as a gradual slide, from $115 a barrel on June 19 to $100 a barrel by September 8, turned into something more serious, with prices plunging as low as $84 by mid-October. Volatility is back—and our 2011 essay explains why.
The story began this summer, when oil prices began to fall due to weak economic growth worldwide and increased oil production in Libya. More supply and less demand normally lead to lower prices, but traders assumed that Saudi
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