The 1980s oil glut was a serious surplus of crude oil caused by falling demand following the 1970s energy crisis. The world price of oil had peaked in 1980 at over US$35 per barrel (equivalent to $106 per barrel in 2008 dollars, when adjusted for inflation); it fell in 1986 from $27 to below $10 ($62 to $23 in 2008 dollars). The glut began in the early 1980s as a result of slowed economic activity in industrial countries due to the crises of the 1970s, especially in 1973 and 1979, and the energy conservation spurred by high fuel prices. The inflation-adjusted real 2004 dollar value of oil fell from an average of $78.2 in 1981 to an average of $26.8 per barrel in 1986.
Petroleum is a naturally occurring, yellowish-black liquid found in geological formations beneath the Earth's surface. It is commonly refined into various types of fuels. Components of petroleum are separated using a technique called fractional distillation, i.e. separation of a liquid mixture into fractions differing in boiling point by means of distillation, typically using a fractionating column.
The 1970s energy crisis was a period when the major industrial countries of the world, particularly the United States, Canada, Western Europe, Japan, Australia, and New Zealand, faced substantial petroleum shortages, real and perceived, as well as elevated prices. The two worst crises of this period were the 1973 oil crisis and the 1979 energy crisis, when the Yom Kippur War and the Iranian Revolution triggered interruptions in Middle Eastern oil exports.
In June 1981, The New York Times proclaimed that an "oil glut" had arrivedand Time Magazine stated that "the world temporarily floats in a glut of oil". However, The New York Times warned the next week that the word "glut" was misleading, and that temporary surpluses had brought down prices somewhat, but prices were still well above pre-energy crisis levels. This sentiment was echoed in November 1981, when the CEO of Exxon Corp also characterized the glut as a temporary surplus, and that the word "glut" was an example of "our American penchant for exaggerated language". He wrote that the main cause of the glut was declining consumption. In the United States, Europe, and Japan, oil consumption had fallen 13% from 1979 to 1981, "in part, in reaction to the very large increases in oil prices by the Organization of Petroleum Exporting Countries and other oil exporters", continuing a trend begun during the 1973 price increases.
After 1980, reduced demand and increased production produced a glut on the world market. The result was a six-year decline in the price of oil, which reduced the price by half in 1986 alone.
During the 1980s, reliance on Middle East production dwindled as commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, the North Sea, and the Gulf of Mexico,and the Soviet Union became the world's largest producer of oil. Smaller non-OPEC producers including Brazil, Egypt, India, Malaysia, and Oman doubled their output between 1979 and 1985, to a total of 3 million barrels per day.
The Middle East is a transcontinental region centered on Western Asia, Turkey, and Egypt. Saudi Arabia is geographically the largest Middle Eastern nation while Bahrain is the smallest. The corresponding adjective is Middle Eastern and the derived noun is Middle Easterner. The term has come into wider usage as a replacement of the term Near East beginning in the early 20th century.
North Sea oil is a mixture of hydrocarbons, comprising liquid petroleum and natural gas, produced from petroleum reservoirs beneath the North Sea.
In April 1979, Jimmy Carter signed an executive order which was to remove price controls from petroleum products by October 1981, so that prices would be wholly determined by the free market. Carter's successor, Ronald Reagan signed an executive order on 28 January 1981, which enacted this reform immediately, [ citation needed ] The US Oil Windfall profits tax was lowered in August 1981 and removed in 1988, ending disincentives to US oil producers. Additionally, Trans-Alaska Pipeline System began pumping oil in 1977. The Alaskan Prudhoe Bay Oil Field entered peak production, supplying 2 million bpd of crude oil in 1988, 25 percent of all U.S. oil production.allowing the free market to adjust oil prices in the US. This ended the withdrawal of old oil from the market and artificial scarcity, encouraging increased oil production.
James Earl Carter Jr. is an American politician and philanthropist who served as the 39th president of the United States from 1977 to 1981. A Democrat, he previously served as a Georgia State senator from 1963 to 1967 and as the 76th governor of Georgia from 1971 to 1975. Carter has remained active in public life during his post-presidency, and in 2002 he was awarded the Nobel Peace Prize for his work in co-founding the Carter Center.
Price controls are governmental restrictions on the prices that can be charged for goods and services in a market. The intent behind implementing such controls can stem from the desire to maintain affordability of goods even during shortages, and to slow inflation, or, alternatively, to ensure a minimum income for providers of certain goods or a minimum wage. There are two primary forms of price control, a price ceiling, the maximum price that can be charged, and a price floor, the minimum price that can be charged.
Ronald Wilson Reagan was an American politician who served as the 40th president of the United States from 1981 to 1989. Prior to his presidency, he was a Hollywood actor and union leader before serving as the 33rd governor of California from 1967 to 1975.
Phillips Petroleum discovered oil in the Chalk Group at Ekofisk, in Norwegian waters in the central North Sea.Discoveries increased exponentially in the 1970s and 1980s, and new fields were developed throughout the continental shelf.
From 1980 to 1986, OPEC decreased oil production several times and nearly in half, in an attempt to maintain oil's high prices. However, it failed to hold on to its preeminent position, and by 1981, its production was surpassed by non-OPEC countries[ clarification needed ]. OPEC had seen its share of the world market drop to less than a third in 1985, from about half during the 1970s. In February 1982, the Boston Globe reported that OPEC's production, which had previously peaked in 1977, was at its lowest level since 1969. Non-OPEC nations were at that time supplying most of the West's imports.
OPEC's membership began to have divided opinions over what actions to take. In September 1985, Saudi Arabia became fed up with de facto propping up prices by lowering its own production in the face of high output from elsewhere in OPEC. million bpd, down from around 10 million in 1981. During this period, OPEC members were supposed to meet production quotas in order to maintain price stability; however, many countries inflated their reserves to achieve higher quotas, cheated, or outright refused to accord with the quotas. In 1985, the Saudis tired of this behavior and decided to punish the undisciplined OPEC countries. The Saudis abandoned their role as swing producer and began producing at full capacity, creating a "huge surplus that angered many of their colleagues in OPEC". High-cost oil production facilities became less or even not profitable. Oil prices as a result fell to as low as $7 per barrel.In 1985, daily output was around 3.5
OPEC had relied on the price inelasticity of demand of oil to maintain high consumption, but underestimated the extent to which other sources of supply would become profitable as prices increased. Electricity generation from coal, nuclear power and natural gas;home heating from natural gas; and ethanol blended gasoline all reduced the demand for oil.
New passenger car fuel economy in the US rose from 17 miles per US gallon (14 L/100 km) in 1978 to more than 22 miles per US gallon (11 L/100 km) in 1982, an increase of more than 30 percent.
The United States imported 28 percent of its oil in 1982 and 1983, down from 46.5 percent in 1977, due to lower consumption.
The 1986 oil price collapse benefited oil-consuming countries such as the United States, Japan, Europe, and developing nations, but represented a serious loss in revenue for oil-producing countries in northern Europe, the Soviet Union, and OPEC.
In 1981, before the brunt of the glut, Time Magazine wrote that in general, "A glut of crude causes tighter development budgets" in some oil-exporting nations. [ citation needed ]Mexico had an economic and debt crisis in 1982. The Venezuelan economy contracted and inflation levels (consumer price inflation) rose, remaining between 6 and 12% from 1982 to 1986. Even Saudi Arabian economic power was significantly weakened.
Iraq had fought a long and costly war against Iran, and had particularly weak revenues. It was upset by Kuwait contributing to the glutand allegedly pumping oil from the Rumaila field below their common border. Iraq invaded Kuwait in 1990, planning to increase reserves and revenues and cancel the debt, resulting in the first Gulf War.
The Soviet Union had become a major oil producer before the glut. The drop of oil prices contributed to the nation's final collapse.
In the U.S., domestic exploration and the number of active drilling rigs were cut dramatically. In late 1985, there were nearly 2,300 rigs drilling wells in the USA; a year later, there were barely 1,000.The number of petroleum producers in United States decreased from 11,370 in 1985 to 5,231 in 1989, according to data from the Independent Petroleum Association of America. Oil producers held back on the search for new oilfields for fear of losing on their investments. In May 2007, companies like ExxonMobil were not making nearly the investment in finding new oil that they did in 1981.
Canada responded to high energy prices in the 1970s with the National Energy Program (NEP) in 1980. This program was in place until 1985.
The Organization of the Petroleum Exporting Countries is an intergovernmental organisation of 14 nations, founded in 1960 in Baghdad by the first five members, and headquartered since 1965 in Vienna, Austria. As of September 2018, the then 15 member countries accounted for an estimated 44 percent of global oil production and 81.5 percent of the world's "proven" oil reserves, giving OPEC a major influence on global oil prices that were previously determined by the so called "Seven Sisters” grouping of multinational oil companies.
The 1973 oil crisis began in October 1973 when the members of the Organization of Arab Petroleum Exporting Countries proclaimed an oil embargo. The embargo was targeted at nations perceived as supporting Israel during the Yom Kippur War. The initial nations targeted were Canada, Japan, the Netherlands, the United Kingdom and the United States with the embargo also later extended to Portugal, Rhodesia and South Africa. By the end of the embargo in March 1974, the price of oil had risen from US$3 per barrel to nearly $12 globally; US prices were significantly higher. The embargo caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy. It was later called the "first oil shock", followed by the 1979 oil crisis, termed the "second oil shock."
The 1979oil crisis or oil shock occurred in the world due to decreased oil output in the wake of the Iranian Revolution. Despite the fact that global oil supply decreased by only ~4%, widespread panic resulted, driving the price far higher. The price of crude oil more than doubled to $39.50 per barrel over the next 12 months, and long lines once again appeared at gas stations, as they had in the 1973 oil crisis.
The National Energy Program (NEP) was an energy policy of the Government of Canada from 1980 to 1985. It was created under the Liberal government of Prime Minister Pierre Trudeau by Minister of Energy Marc Lalonde in 1980, and administered by the Department of Energy, Mines and Resources.
Petroleum politics have been an increasingly important aspect of diplomacy since the rise of the petroleum industry in the Middle East in the early 20th century. As competition continues for a vital resource, the strategic calculations of major and minor countries alike place prominent emphasis on the pumping, refining, transport, sale and use of petroleum products. However, international climate policy and unconventional oil and gas developments may change the balance of power between petroleum exporting and importing countries with major negative implications expected for the exporting states.
From the mid-1980s to September 2003, the inflation-adjusted price of a barrel of crude oil on NYMEX was generally under US$25/barrel. During 2003, the price rose above $30, reached $60 by 11 August 2005, and peaked at $147.30 in July 2008. Commentators attributed these price increases to many factors, including Middle East tension, soaring demand from China, the falling value of the U.S. dollar, reports showing a decline in petroleum reserves, worries over peak oil, and financial speculation.
Ahmed Zaki Yamani is a Saudi Arabian politician who was Minister of Oil (Petroleum) and Mineral Resources from 1962 to 1986, and a minister in the Organization of the Petroleum Exporting Countries (OPEC) for 25 years.
The price of oil, or the oil price, (generally) refers to the spot price of a barrel of benchmark crude oil—a reference price for buyers and sellers of crude oil such as West Texas Intermediate (WTI), Brent ICE, Dubai Crude, OPEC Reference Basket, Tapis Crude, Bonny Light, Urals oil, Isthmus and Western Canadian Select (WCS). There is a differential in the price of a barrel of oil based on its grade—determined by factors such as its specific gravity or API and its sulphur content—and its location—for example, its proximity to tidewater and/or refineries. Heavier, sour crude oils lacking in tidewater access—such as Western Canadian Select—are less expensive than lighter, sweeter oil—such as WTI.
Petroleum in the United States has been a major industry since shortly after the oil discovery in the Oil Creek area of Titusville, Pennsylvania in 1859. The petroleum industry includes exploration for, production, processing (refining), transportation, and marketing of natural gas and petroleum products. As of 2008, the U.S. was the world's third-largest oil producer, producing 8.5 million barrels of oil and natural gas liquids per day. The leading oil-producing area in the United States in 2014 was Texas, followed by the federal zone of the Gulf of Mexico, followed by North Dakota and California.
The proven oil reserves in Saudi Arabia are the 2nd largest in the world, estimated to be 268 billion barrels, including 2.5 Gbbl in the Saudi–Kuwaiti neutral zone. They are predominantly found in the Eastern Province. These reserves were the largest in the world until Venezuela announced they had increased their proven reserves to 297 Gbbl in January 2011. The Saudi reserves are about one-fifth of the world's total conventional oil reserves, a large fraction of these reserves comes from a small number of very large oil fields, and past production amounts to 40% of the stated reserves.
From the mid-1980s to September 2003, the inflation adjusted price of a barrel of crude oil on NYMEX was generally under $25/barrel. Then, during 2004, the price rose above $40, and then $60. A series of events led the price to exceed $60 by August 11, 2005, leading to a record-speed hike that reached $75 by the middle of 2006. Prices then dropped back to $60/barrel by the early part of 2007 before rising steeply again to $92/barrel by October 2007, and $99.29/barrel for December futures in New York on November 21, 2007. Throughout the first half of 2008, oil regularly reached record high prices. Prices on June 27, 2008, touched $141.71/barrel, for August delivery in the New York Mercantile Exchange, amid Libya's threat to cut output, and OPEC's president predicted prices may reach $170 by the Northern summer. The highest recorded price per barrel maximum of $147.02 was reached on July 11, 2008. After falling below $100 in the late summer of 2008, prices rose again in late September. On September 22, oil rose over $25 to $130 before settling again to $120.92, marking a record one-day gain of $16.37. Electronic crude oil trading was temporarily halted by NYMEX when the daily price rise limit of $10 was reached, but the limit was reset seconds later and trading resumed. By October 16, prices had fallen again to below $70, and on November 6 oil closed below $60. Then in 2009, prices went slightly higher, although not to the extent of the 2005–2007 crisis, exceeding $100 in 2011 and most of 2012. Since late 2013 the oil price has fallen below the $100 mark, plummeting below the $50 mark one year later.
Energy use in Oman was 175 TWh and 61 TWh per million people in 2009. In 2008, primary energy use in Oman grew to 191 TWh and 69 TWh per million people.
The 2010s oil glut is a considerable surplus of crude oil that started in 2014–2015 and accelerated in 2016, with multiple causes. They include general oversupply as US and Canadian tight oil production reached critical volumes, geopolitical rivalries amongst oil-producing nations, falling demand across commodities markets due to the deceleration of the Chinese economy, and possible restraint of long-term demand as Environmental policy promotes fuel efficiency and steers an increasing share of energy consumption away from fossil fuels.
The posted price of oil was the price that oil companies offered to purchase oil from oil-producing governments. This price was set by the oil companies and used to calculate the share of oil revenues that oil producing countries would receive. Between 1957 and 1972, the posted price was greater than the market price of crude oil. Between 1961 and 1970 the market price hovered between $1.30 and $1.50 per barrel, while the posted price was a constant $1.80.
By September 30, 1981, petroleum prices were to be determined by the free market. This process was accelerated by President Reagan through an Executive Order
Oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms. As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive.
High oil prices in the 1970s propped up the regime so well, that had it not been for Soviet oil sales, it's quite possible the regime would have collapsed a decade earlier.