1980s oil glut

Production

Non-OPEC

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.

United States

In April 1979, U.S. President Jimmy Carter signed an executive order 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 that reform immediately, allowing the free market to adjust oil prices in the United States. That ended the withdrawal of old oil from the market and artificial scarcity, which encouraged an increase in oil production.

Additionally, the 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.

North Sea

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.

OPEC

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. 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 unhappy with de facto propping up prices by lowering its own production in the face of high output from elsewhere in OPEC. In 1985, daily output was around 3.5 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.

Reduced demand

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;{{cite journal |access-date=4 January 2008 |archive-url=https://web.archive.org/web/20071203152254/http://www.iaea.org/OurWork/ST/NE/Pess/assets/oil%2Bnp_toth%2Brogner0106.pdf |archive-date=3 December 2007 |url-status=live

United States

New passenger car fuel economy in the United States changed from 14 mpgus in 1975 to 22 mpgus in 1982, a change of more than 50 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.

Brazil

Impact

The 1986 oil price collapse benefited oil-consuming countries such as the United States and Japan, countries in 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. Mexico had an economic and debt crisis in 1982.{{cite book |author-link=Ramón Eduardo Ruiz

Iraq had fought a long and costly war against Iran and had particularly weak revenues. It was upset by Kuwait contributing to the glut |access-date=14 January 2008 |archive-url=https://web.archive.org/web/20071217234053/http://www.nmhschool.org/tthornton/mehistorydatabase/gulf_war.php |archive-date=17 December 2007

|access-date=12 January 2008 |archive-url=https://web.archive.org/web/20080227032238/http://www.cnr.vt.edu/lsg/intro/oil.pdf |archive-date=27 February 2008

The glut directed Algeria into an economic recession and directly influenced the politics: the authoritarian regime of Chadli Bendjedid had to compromise with Islamic opposition in 1984 and start economic reforms dismantling socialism in 1987. After the 1988 October Riots he reformed the constitution twice, liberalized the political space amid growing discontent, and was ousted from office by the military after his party lost the first multi-party elections to Islamists, eventually leading to the Algerian Civil 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 United States, domestic exploration and the number of active drilling rigs were cut dramatically. In late 1985, there were nearly 2,300 rigs drilling wells; a year later, there were barely 1,000. The number of U.S. petroleum producers 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. |author-link=Justin Fox |access-date=8 January 2008 |archive-url=https://web.archive.org/web/20080113233033/http://www.time.com/time/magazine/article/0%2C9171%2C1626994%2C00.html |archive-date=13 January 2008

Canada responded to high energy prices in the 1970s with the National Energy Program (NEP) in 1980. The program was in place until 1985.

References

References

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