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PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
of oil had made it a true commodity. The market shifted from OPEC
to the New York Mercantile Exchange in 1983, and the futures market now included oil as a speculative commodity. With this shift, oil
companies moved from production to speculation on the open market, but the pivotal moment was when the benchmark crude went
from Arab Light crude oil to West Texas Intermediate (WTI) crude
oil, reversing the move made two decades earlier when Arab Light
crude oil had replaced Texas Gulf Coast crude oil as the benchmark
crude oil.
In 1984, the OPEC member countries found that the quota system they had instituted was flawed. Most member countries had
programs that, if they were not an outright sale of oil, then it was
through barter trade for military hardware and industrial goods
and the crude oil market was in a state of oversupply. The OPEC
members had the option to lower prices or continue to prop up the
prices with a continued loss of market share.
However, at a meeting in fall of 1985, the members collectively
declared a price war. After the author's return from Iraq, where
he had a meeting with Vice President Sadam Hussein, the author
warned of such an event but the idea was dismissed and even
called ludicrous by a so-called energy economist for an academic
institution. Yet, it happened. Oil was a truly an economic weapon
and the result was economic warfare.
The end of the 1980s conveyed the state of affairs in the oil industry. The member-countries (i.e. the producers) had taken over crude
oil production and the oil companies were reduced to the rank of
contractors. Even though consumers fought back and took their
purchasing power to producers where the price was right, stability
had not been reached.
5.2.3 Recent History
Between 1991 and 2003, there were notable events that shaped the
oil industry and international economies. The spike in prices after
the Gulf War reached a high, but quickly shrunk after the United
States released some of the Strategic Petroleum Reserves. The former Soviet Union broke up and the former republic's oil-producing
countries started to court the world market, which further reduced
oil prices. However, the OPEC members raised prices while raising
production to the highest level in decades. Kuwait defied the OPEC
quotas to finance reconstruction and prices immediately decreased.
PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
of oil had made it a true commodity. The market shifted from OPEC
to the New York Mercantile Exchange in 1983, and the futures market now included oil as a speculative commodity. With this shift, oil
companies moved from production to speculation on the open market, but the pivotal moment was when the benchmark crude went
from Arab Light crude oil to West Texas Intermediate (WTI) crude
oil, reversing the move made two decades earlier when Arab Light
crude oil had replaced Texas Gulf Coast crude oil as the benchmark
crude oil.
In 1984, the OPEC member countries found that the quota system they had instituted was flawed. Most member countries had
programs that, if they were not an outright sale of oil, then it was
through barter trade for military hardware and industrial goods
and the crude oil market was in a state of oversupply. The OPEC
members had the option to lower prices or continue to prop up the
prices with a continued loss of market share.
However, at a meeting in fall of 1985, the members collectively
declared a price war. After the author's return from Iraq, where
he had a meeting with Vice President Sadam Hussein, the author
warned of such an event but the idea was dismissed and even
called ludicrous by a so-called energy economist for an academic
institution. Yet, it happened. Oil was a truly an economic weapon
and the result was economic warfare.
The end of the 1980s conveyed the state of affairs in the oil industry. The member-countries (i.e. the producers) had taken over crude
oil production and the oil companies were reduced to the rank of
contractors. Even though consumers fought back and took their
purchasing power to producers where the price was right, stability
had not been reached.
5.2.3 Recent History
Between 1991 and 2003, there were notable events that shaped the
oil industry and international economies. The spike in prices after
the Gulf War reached a high, but quickly shrunk after the United
States released some of the Strategic Petroleum Reserves. The former Soviet Union broke up and the former republic's oil-producing
countries started to court the world market, which further reduced
oil prices. However, the OPEC members raised prices while raising
production to the highest level in decades. Kuwait defied the OPEC
quotas to finance reconstruction and prices immediately decreased.