— Ch. 1 · Origins And Demand Shifts —
1980s oil glut.
~5 min read · Ch. 1 of 6
The world price of oil had peaked in 1980 at over US$35 per barrel. This high cost triggered a wave of conservation efforts across industrial nations. In the United States, Europe, and Japan, oil consumption fell by 13% from 1979 to 1981. Consumers reacted directly to the very large increases in oil prices set by OPEC. New passenger car fuel economy in the United States changed from 18 miles per gallon in 1975 to 26 miles per gallon in 1982. This shift represented a change of more than 50 percent in vehicle efficiency. Electricity generation shifted toward coal, nuclear power, and natural gas. Home heating systems increasingly relied on natural gas instead of oil. Ethanol blended gasoline also reduced the demand for crude oil. The inflation-adjusted real value of oil fell from an average of $78.2 in 1981 to $26.8 per barrel in 1986. Time magazine noted that such a glut caused tighter development budgets in exporting nations. By June 1981, The New York Times proclaimed that an oil glut had arrived.
Non-OPEC Production Surge
Commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, and the North Sea during the 1980s. Smaller non-OPEC producers including Brazil, Egypt, India, Malaysia, and Oman doubled their output between 1979 and 1985. These smaller nations reached a total production of 3 million barrels per day. The Soviet Union became the world's largest producer of oil by this time. In April 1979, U.S. President Jimmy Carter signed an executive order to remove price controls from petroleum products. Ronald Reagan signed an executive order on the 28th of January 1981 which enacted that reform immediately. This policy change allowed the free market to adjust oil prices in the United States. 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. This single field accounted for 25 percent of all U.S. oil production. Phillips Petroleum discovered oil in the Chalk Group at Ekofisk, in Norwegian waters. Discoveries increased exponentially throughout the continental shelf in the 1970s and 1980s.