With a functioning, efficient futures market expected developments would figure in the price. For the out months in futures what you see is what you get.
For widespread shortages and/or prices increases, price controls or other artificial distortions are needed. Otherwise, the spikes will be short-lived in nature and followed by collapses. The 1970's gas shortages were the result of price controls, pure and simple. A bit of history is in order.
From the end of WW II price controls and rationing till around 1970 gasoline, on an inflation adjusted basis trended downward. There were periodic price wars, and frequent trading stamp and merchandise giveaways.
Starting around midway through 1972 (you read that right, not 1973 or 1974) the petroleum market became extremely tight. That summer there were actually a few spot shortages and major oil companies stopped subsidizing the ability of their retailers to match competitors' prices. Later in 1972 they reduced supplies to independent retailers. Since independents had little gasoline to sell, there was actually a small gasoline shortage that spring and summer. During this period, not surprisingly, crude oil prices began to rise.
In the U.S. retail prices didn't increase as much because of the continuation of Phase II wage and price controls after the January 11, 1973 end of those controls on the rest of the economy. All hell broke loose after the January 11, 1973 switch to Phase III controls, which continued controls on petroleum and natural gas, and lifted them on much of the rest of the economy. Around the end of April, if I recall correctly April 21, 1973 the oil companies ceased promotional advertising and the giveaways of stamps, glasses and bowls. The next month the companies began limiting their stations to year-earlier sales levels and in some cases to allocation fractions of around 90% of year earlier levels.
Gasoline shortages became widespread around the end of April 1973 when oil companies, uniquely unable to raise prices or pass along higher overseas prices began restricting dealers to, at first, 100% of year earlier sales, and then on a company by company basis cut to 85% or 90%. Note, this was before the oil embargo. Oil producers and refiners were operating at somewhat over rated capacity, giving a short period of temporary relief in late August and September. Exxon and maybe other companies suspended dealer allocations, allowing resumption of unlimited dealer sales. Prices softened a bit.
Then, the October 1973 Yom Kippur War served as a pretext for exporting countries to announce major production cuts and price increases. This culminated, by December, in an overall quadrupling of crude prices.Many people were impressed back in 1973 and 1974 when costumed ministers gathered gravely in Vienna and the price seemed to jump, and availability at any price seemed to change with their pronouncements. In most cases they were making a virtue out of necessity. At that time OPEC announced a rescinding of some of their cuts. This was dressed up in conciliatory language. In the real world it probably reflected cheating on obeying the cuts. Sound familiar?
In March 1974 the embargo was ended and further production increases were announced. The long lines at the gas pumps magically disappeared. Prices jumped sharply and then by August 1974 began settling back, in some cases to under $0.50 per gallon. Crude prices declined also but not "officially." This again was cheating. By mid-1978 the nominal $12 per barrel (about the same as 1974) was about $9.16 in 1974 dollars, using the deflator
(link). The economy, which has been in deep recession in 1974-5 was by now rolling. Iran's revolution then did cause a real and deep overall production cut. Not surprisingly prices surged to around $40 per barrel over 1979-80.
Both the 1973-4 and 1979-80 runup were accompanied by a Rube Goldberg price control and allocation mechanism in the U.S. How do you know when prices are held down by controls? When you see prices ending in figures other than ".9". For example, at the Hess station in Scarsdale Mobil station I remember seeing gasoline at $0.475 in March 1974 (very low due to a glitch in controls which was fixed late that month) to $.568 a gallon and just over $0.60. Then when allocations were removed the price was reduced to $0.579. I stopped following its price when a nearby Merit dropped to $0.529 and Hess in Mamaroneck to $0.539.
When price controls were disbanded by Reagan within 10 days of his taking office, the prices began dropping. Crude went under $10 a barrel in 1986 and then again in 1998-9. Importantly neither were recession years. Even the recent $52 per barrel is equal to under $12 per barrel in 1972 dollars and $13.74 in 1974 dollars. So we are under the prices achieved in 1974 and well under 1979-80 levels.
So ending the history lesson and returning to the thread topic how do we know shortages won't recur on any widespread basis; no price controls. There may be some areas that have a real problem if the refinery supplying their area is down. But it won't last long.
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