March 10, 2022 11:13AM # The 2008 Oil Price Spike and Collapse in Retrospect By [Alan Reynolds](https://www.cato.org/people/alan-reynolds) --- SHARE I wrote “[Get Ready for the Oil Price Drop](https://www.cato.org/commentary/get-ready-oil-price-drop)” in June 2008 for the *New York Post*. It proved to be a good and timely call. The price of WTI crude peaked at $133.90 that month before falling to $41 that December. There are obvious differences between 2022 and 2008 (unpredictable warfare and [sanctions](https://www.cato.org/blog/unintelligible-psaki-biden-theory-oil-prices-1)), but some economic principals I enumerated in 2008 still apply even if the timing does not. Here are a few points I raised in 2008 which may still be worth keeping in mind: “A huge share of crude oil is used to produce and distribute *industrial* products. That explains why the price of oil is *extremely* cyclical – that is, it tends to rise during economic booms and fall during contractions.” “Oil prices have a *huge* impact on producers’ cost of production – profits and losses – not just on consumers’ cost of living.” “Nine out of 10 previous postwar recessions began shortly after a big spike in the price of oil. Yet those recessions always slashed oil prices dramatically. People who have been predicting both a nasty US recession and $200 oil prices are contradicting themselves… But note that a *US* recession isn’t required to bring down the price of oil. All that’s needed is industrial stagnation or decline in many *other* countries.” “When the price of anything gets unbearably high, it discourages demand. The resulting drop in sales, in turn, causes inventories to pile up and the price to come down.” ##### Related Tags [Economics](https://www.cato.org/economics), [Trade Policy](https://www.cato.org/trade-policy), [Energy and Environment](https://www.cato.org/research/energy-environment) [![Creative Commons License](/build/cato_2020/images/creative-commons.svg)](http://creativecommons.org/licenses/by-nc-sa/4.0/) This work is licensed under a [Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License](https://creativecommons.org/licenses/by-nc-sa/4.0/).