Real crude oil prices and petroleum product prices rose rather than fell relative to the prices of other internationally traded commodities during the 1980-82 period of slack market conditions. Although the oil price in dollars was relatively stable during this period, the value of the dollar was rising sharply against other national currencies. This trend reinforced the effect of the world recession on reducing total oil consumption, thus contributing to the eventual price break observed in the oil markets. When adjusted for the changing value of the dollar, real oil prices today (about $29 in 1983) appear comparable to their 1980 level.
It is important to recognize these developments when analyzing the current oil market. The response of world oil consumption to oil price changes will be overestimated if one uses a price measure (e.g., constant U.S. dollars) that understates the price increment globally. Since oil demand is dynamic, this demand bias can be expected to grow over time as long as this price disparity prevails.
Reprinted 1984 from The Energy Journal, Vol 5, No 3, July 1984, pp 119-131.