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PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
The crude-oil price spike of the early 1970s was due to an
embargo imposed by the Organization of Petroleum Exporting
Countries (OPEC). Less oil without an immediate corresponding
decline in oil demand drove prices up. Even if businesses could pay
the higher price, they could not get the oil they needed to sustain
the pace of economic activity. As a result, real output slowed and
costs rose. This put pressure on profit margins, which in turn forced
businesses to boost prices. Meanwhile, workers expected prices to
continue to rise and demanded even higher wages. Without corresponding productivity gains, this led to stagflation later in the
decade (Laufenberg, 2007).
In mid-1985, oil prices were linked to the spot market for crude,
and by early 1986, prices decreased to the lowest levels since the
early 1970s and moved downward to $8 to $10 per barrel. The price
of crude oil rose again in 1990 with the Iraqi invasion of Kuwait
and the ensuing Gulf War, but following the cessation of hostilities,
crude oil prices entered a steady decline. However, since then, the
demand in the United States and Europe has increased approximately 6 to 8% a year, which has, at times, been a strain on crude
oil supply.
From 1990 to 1997, world oil consumption increased by more
than six million barrels per day, but the price increases came to an
end when, due to downward trends in several Asian economies,
higher OPEC production sent prices downward. In late 1997 several events combined to initiate a precipitous drop in world oil
prices:
1. Asian economies, which had been generating
the greatest increases in petroleum demand, suffered substantial contractions causing a lowering
petroleum use.
2. The OPEC member nations, who may have mis-read
this situation, agreed to increase oil production.
3. The Northern Hemisphere benefited from a mild
winter and the demand for crude oil and crude oil
products was reduced.
4. Weakness in the Russian economy resulted in higher
exports of Russian petroleum.
5. Venezuela and Saudi Arabia engaged in a market
share battle that led to higher volumes of petroleum
exports.
PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
The crude-oil price spike of the early 1970s was due to an
embargo imposed by the Organization of Petroleum Exporting
Countries (OPEC). Less oil without an immediate corresponding
decline in oil demand drove prices up. Even if businesses could pay
the higher price, they could not get the oil they needed to sustain
the pace of economic activity. As a result, real output slowed and
costs rose. This put pressure on profit margins, which in turn forced
businesses to boost prices. Meanwhile, workers expected prices to
continue to rise and demanded even higher wages. Without corresponding productivity gains, this led to stagflation later in the
decade (Laufenberg, 2007).
In mid-1985, oil prices were linked to the spot market for crude,
and by early 1986, prices decreased to the lowest levels since the
early 1970s and moved downward to $8 to $10 per barrel. The price
of crude oil rose again in 1990 with the Iraqi invasion of Kuwait
and the ensuing Gulf War, but following the cessation of hostilities,
crude oil prices entered a steady decline. However, since then, the
demand in the United States and Europe has increased approximately 6 to 8% a year, which has, at times, been a strain on crude
oil supply.
From 1990 to 1997, world oil consumption increased by more
than six million barrels per day, but the price increases came to an
end when, due to downward trends in several Asian economies,
higher OPEC production sent prices downward. In late 1997 several events combined to initiate a precipitous drop in world oil
prices:
1. Asian economies, which had been generating
the greatest increases in petroleum demand, suffered substantial contractions causing a lowering
petroleum use.
2. The OPEC member nations, who may have mis-read
this situation, agreed to increase oil production.
3. The Northern Hemisphere benefited from a mild
winter and the demand for crude oil and crude oil
products was reduced.
4. Weakness in the Russian economy resulted in higher
exports of Russian petroleum.
5. Venezuela and Saudi Arabia engaged in a market
share battle that led to higher volumes of petroleum
exports.