Where Did The Oil Crisis Go?
January 27, 1999
Oil is now selling for about $10 a barrel. Back in the dark days of 1981 it went for about $53. What happened?
- The current price of $10 a barrel is about what it sold for in real terms in 1972 -- though doomsayers, including President Jimmy Carter, concluded during the '70s that the world was running out of resources, and some said civilization was doomed.
- By 1985, the era of high oil prices came to an end.
- Experts conclude that the Organization of Petroleum Exporting Countries (OPEC) made a mistake -- as cartels inevitably do -- and that there is still plenty of oil around.
- Initially, OPEC got greedy and tried to limit production among members -- but arrangements fell apart as the individual states started cheating.
Saudi Arabia, in particular, suffered from cutbacks in demand and new sources of supply. High oil prices initiated a wave of drilling and exploration -- most evident in the U.S.
Moreover, the new oil-rich states couldn't spend their money fast enough and decided to leave oil in the ground, assuming it would be worth more later.
But that hasn't happened.
Source: Paul Krugman, "The Energy Noncrisis Explained," Fortune, February 1, 1999.
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