(The Fuse) When Sheikh Ali Khalifa al-Sabah of Kuwait thinks about today’s plunging oil prices, his mind drifts back to the mid-1980s, when he was forced to sell some of his country’s crude for as little as $5 a barrel.
As Kuwait’s oil minister at the time, Sheikh Ali had to sell a cargo or two at that price just to keep up cash flow to a country that depended upon oil revenues. “It wasn’t because I wanted to; it was because it was the market price,” he recalls.
“We really had no alternative.”
For oil industry players active during the 1980s bust, the current drop in prices carries echoes of those desperate days. Interviews with some of those involved in that period reveal that while there is little consensus on how long prices will stay depressed, experience suggests the current market glut will not evaporate soon.
Representatives from all aspects of the energy industry will be mulling current low oil prices and the supply glut this week during the IHS CERAWeek gathering in Houston.
Kuwait’s struggles in the 1980s are instructive for anyone wondering whether producing countries can tinker their way out of trouble now. In the face of weak prices in the early years of the decade the OPEC production group introduced output cuts in an attempt to mop up oversupply. Kuwait slashed production from nearly 2 million barrels per day to about 600,000 bpd. The top producer Saudi Arabia made even costlier cuts.
Three factors dashed the plan: fellow OPEC members cheated on their own cuts; global thirst for oil had dried up after price spikes in the 1970s pushed consumers to buy efficient cars; and new supplies, particularly from non-OPEC Mexico, Norway, and Alaska threatened to squash gains from any cuts.
By late 1986, Saudi Arabia and other OPEC members opened the taps again to regain market share, and prices did not recover for 20 years.The memory leaves Sheikh Ali, now 71, feeling grim about a price recovery this time.”Tomorrow if the price of oil goes down to $20 I would not […]