The Real and Nominal price of oil from 1968 to 2006. ^[1]

The 1980s oil glut was a surplus of crude oil caused by falling demand following the 1973 and 1979 energy crises. Petroleum ( L petroleum, from Greek πετρέλαιον, lit The 1973 oil crisis began on October 17 1973 when the members of Organization of Arab Petroleum Exporting Countries (OAPEC consisting of the Arab members of The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. The world price of oil, which had peaked in 1979 at over US$35 per barrel, collapsed in 1986 from $27 to below $10. The United States dollar ( sign: $; code: USD) is the unit of Currency of the United States; it has also been ^[2] The glut began in the early 1980s as a result of increased crude production over the low 1979 levels, slowed economic activity in industrial countries (due to the 1973 and 1979 energy crises) and the energy conservation spurred by high fuel prices^[3]. The inflation adjusted real 2004 dollar value of oil fell from an average of $78. In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time The distinction between real versus nominal value occurs in many fields 2 in 1981 to an average of $26. 8 per barrel in 1986. ^[4]

In June 1981, The New York Times stated an "Oil glut! . . . is here" ^[5] and Time Magazine stated: "the world temporarily floats in a glut of oil," ^[6] though the next week a New York Times article warned that the word "glut" was misleading, and that in reality, while temporary surpluses had brought down prices somewhat, prices were still well above pre-energy crisis levels. Time (trademarked in capitals as TIME) is a weekly American Newsmagazine, similar to Newsweek and ^[7] 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. The Exxon Mobil Corporation, or ExxonMobil, is an American oil and gas Corporation and a direct descendant of John D " 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, due to "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. ^[8]

After 1980, reduced demand and overproduction produced a glut on the world market, causing a six-year-long decline in oil prices culminating with a 46 percent price drop in 1986.

Detailed analysis of changes in oil price from 1970-2007. The graph is based on the nominal, not real, price of oil. The distinction between real versus nominal value occurs in many fields

Background

The 1973 energy crisis and the 1979 energy crisis increased public awareness that oil is a limited resource, and that it would eventually run out as an economically viable energy source. The 1973 oil crisis began on October 17 1973 when the members of Organization of Arab Petroleum Exporting Countries (OAPEC consisting of the Arab members of The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. During the 1973 energy crisis, the price of oil quadrupled. ^[9] Oil never returned to pre-1973 levels, either in real or nominal terms, even during the 1980s glut.

The nominal price continued its slow increase after the crisis ended. Six years later, the price more than doubled during the 1979 energy crisis. ^[9] OPEC and Saudi Arabia artificially raised the price of oil several times in 1979 and 1980. Also during this time, several OPEC members significantly lowered their production levels, the Iran hostage crisis occurred, and the Iran-Iraq War began. The Iran hostage crisis ( Persian: تصرف سفارت آمریکا was a diplomatic crisis between Iran and the United States where 52

There was fear that the world would soon run out of oil, causing the price of oil to escalate, and OPEC would be the one in the middle, dictating the price. The Organization of the Petroleum Exporting Countries ( OPEC) is a Cartel of thirteen countries made up of Algeria, Angola, Ecuador

Production

OPEC, Non-OPEC, & World oil production, 1973-2004 ^[10]

Non-OPEC

During the 1980s, non-OPEC production increased worldwide. ^[10]

US

Ronald Reagan lifted domestic petroleum pricing and allocation controls on January 28, 1981 allowing the free market to adjust oil prices in the US. Petroleum ( L petroleum, from Greek πετρέλαιον, lit Events 1077 - Walk to Canossa: The Excommunication of Henry IV Holy Roman Emperor is lifted Year 1981 ( MCMLXXXI) was a Common year starting on Thursday (link displays the 1981 A free market is a Market in which property rights are voluntarily exchanged at a price arranged completely by the mutual consent of sellers and buyers This ended the withdrawal of old oil from the market and artificial scarcity, encouraging increased oil production. The US Oil Windfall profits tax was lowered in August 1981 and ended in 1988 ending disincentives to US oil producers. A windfall profits tax is a higher Tax rate on profits that ensue from a sudden Windfall gain to a particular company or Industry.

OPEC

From 1980 to 1986, OPEC decreased oil production several times and nearly in half to maintain oil's high prices. The Organization of the Petroleum Exporting Countries ( OPEC) is a Cartel of thirteen countries made up of Algeria, Angola, Ecuador However, it failed to hold on to its preeminent position, and by 1981, its production surpassed other countries. OPEC had seen its share of the world market drop to less than a third in 1985, from nearly half during the 1970s. ^[11] In Feb 1982, the Boston Globe reported that OPEC's production, which had previously peaked in 1977, was at its lowest level since 1969. Year 1982 ( MCMLXXXII) was a Common year starting on Friday (link displays the 1982 Gregorian calendar) The Boston Globe (and Boston Sunday Globe) is the most widely circulated daily Newspaper in Boston and in New England, Non-OPEC nations were at that time supplying most of the West's imports. ^[12]

OPEC's membership began to have divided opinions over what actions to take. In September 1985, Saudi Arabia, tried to gain market share by increasing production, creating a "huge surplus that angered many of their colleagues in OPEC". The Kingdom of Saudi Arabia, KSA ( المملكة العربية السعودية, al-Mamlaka al-ʻArabiyya as-Suʻūdiyya) or Suudi ^[13] High-cost oil production facilities became less or even not profitable. In Physics, Energy economics and ecological energetics, EROEI (Energy Returned on Energy Invested ERoEI, EROI (Energy Return On

US imports

The US imported 28 percent of its oil in 1982 and 1983, down from 46. 5 percent in 1977, due to lower consumption. Reliance on Middle East sources dwindled even further as Britain, Mexico, Nigeria and Norway joined Canada in the forefront of American suppliers. The Middle East is a Subcontinent with no clear boundaries often used as a synonym to Near East, in opposition to Far East. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located The United Mexican States ( or commonly Mexico (ˈmɛksɪkoʊ () is a federal constitutional Republic in North America. Nigeria, officially named the Federal Republic of Nigeria, is a federal Constitutional republic comprising thirty-six states and one Federal Norway ( Norwegian: Norge ( Bokmål) or Noreg ( Nynorsk) officially the Kingdom of Norway, is a Constitutional Country to "Dominion of Canada" or "Canadian Federation" or anything else please read the Talk Page ^[11]

Imported crude oil from Libya was banned in the United States on March 10, 1982. ^[14]

Reduced demand

1984 issue of Texas Monthly magazine^[15]

Part of the decline in prices and economic and geopolitical power of OPEC came from the shift from oil consumption to alternate energy sources. Texas Monthly is a monthly American Magazine published in Austin, Texas. OPEC had relied on the famously limited price elasticity of demand of oil to maintain high consumption, but underestimated the extent to which other sources of supply would become profitable as prices increased. In Economics and business studies the price elasticity of demand (PED is a measure of the sensitivity of quantity demanded to changes in price Electricity generation from nuclear power and natural gas^[16], home heating from natural gas and ethanol blended gasoline all reduced the demand for oil. Nuclear power is any Nuclear technology designed to extract usable Energy from atomic nuclei via controlled Nuclear reactions Natural gas is a Gaseous Fossil fuel consisting primarily of Methane but including significant quantities of Ethane, Propane, New passenger car fuel economy rose from 17 mpg in 1978 to more than 22 mpg in 1982, an increase of more than 30 percent. ^[17]

Impact

OPEC net oil export revenues for 1971 - 2007. ^[18]

The 1986 oil price collapse benefited oil-consuming countries such as the United States, Japan, Europe, and Third World nations, but represented a serious loss in revenue for oil-producing countries in northern Europe, the Soviet Union, and OPEC. Northern Europe is a term for the northern part of Europe. The United Nations defines Northern Europe as (Finland The Union of Soviet Socialist Republics (USSR was a constitutionally Socialist state that existed in Eurasia from 1922 to 1991 The Organization of the Petroleum Exporting Countries ( OPEC) is a Cartel of thirteen countries made up of Algeria, Angola, Ecuador

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. ^[19] For a handful of heavily populated impoverished countries, whose economies were largely dependent on oil production — including Mexico, Nigeria, Algeria, and Libya — government and business leaders failed to prepare for a market reversal. The United Mexican States ( or commonly Mexico (ˈmɛksɪkoʊ () is a federal constitutional Republic in North America. Nigeria, officially named the Federal Republic of Nigeria, is a federal Constitutional republic comprising thirty-six states and one Federal Algeria ( ar [[Arabic]] الجزائر, Al Jaza'ir ælʤæˈzæːʔir Amazigh: ⴷⵥⴰⵢⴻⵔ Dzayer) officially the People's Libya ( ليبيا ar-Latn Lībiyā; Libyan vernacular: Lībya; Amazigh:) officially the Great Socialist People's Libyan Arab

With the drop in oil prices, OPEC lost its unity. Oil exporters such as Mexico, Nigeria, and Venezuela, whose economies had expanded in the 1970s, were plunged into near-bankruptcy. 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 glut^[20] and allegedly pumping oil from the Rumaila field below their common border^[21]. The State of Kuwait ( دولة الكويت IPA [dawlatt̪ alkuwajt̪]) is a sovereign Arab Emirate on the coast of the Persian Gulf, enclosed Iraq entered Kuwaitii territory in 1990, planning to increase reserves and revenues and cancel the debt, resulting in the first Gulf War^[21]

The USSR had become a major oil producer before the glut. The Invasion of Kuwait, also known as the Iraq-Kuwait War, was a major conflict between the Republic of Iraq and the State of Kuwait which resulted The drop of oil prices contributed to the nation's final collapse ^[22].

In the US there was a dramatic decline domestic exploration, and the number of active drilling rigs was nearly halved in 1982. "^[23] Oil producers held back on the search for new oilfields for fear of losing on their investments^[24]. As of May 2007, companies like ExxonMobil are not making nearly the investment in finding new oil today that they did in 1981. May 2007 is the fifth month of that year It began on a Tuesday and 31 days later ended on a Thursday. The Exxon Mobil Corporation, or ExxonMobil, is an American oil and gas Corporation and a direct descendant of John D ^[25]

See also

• 1973 oil crisis
• 1980-1989 world oil market chronology
• 1979 energy crisis
• Oil price increases since 2003
• Price of petroleum

External links

• Energy Information Administration: Chronology of World Oil Market Events 1980s
• Houston of history-Oil Glut and the Economic Downturn

Further reading

• World Hydrocarbon Markets: Current Status, Projected Prospects, and Future Trends, (1983), By Miguel S. The 1973 oil crisis began on October 17 1973 when the members of Organization of Arab Petroleum Exporting Countries (OAPEC consisting of the Arab members of 1980 March 1: United States federal Windfall Profits Tax enacted The 1979 (or second) oil crisis in the United States occurred in the wake of the Iranian Revolution. This article is about the price of crude oil see Gasoline usage and pricing for information about derivative motor fuels Wionczek, ISBN 0080299628
• The Prize: The Epic Quest for Oil, Money, and Power,(1993) , by Daniel Yergin]], Simon & Schuster, ISBN 0671799320 & ISBN 0671502484
• The Oil Market in the 1980s: A Decade of Decline, (1992), by Siamack Shojai, Bernard S. The Prize The Epic Quest for Oil Money and Power is Daniel Yergin 's 800-page history of the global Oil industry from the 1850s through 1990 Daniel H Yergin (born February 6, 1947) is an American author speaker and economic researcher Simon & Schuster Inc, a division of CBS Corporation, is a Publisher founded in New York in 1924 by Richard L Katz, Praeger/Greenwood, ISBN 0275933806

References