1980s oil glut

In June 1981, The New York Times proclaimed that an "oil glut" had arrived and Time stated that "the world temporarily floats in a glut of oil". However, The New York Times warned the next week that the word "glut" was misleading, and that temporary surpluses had brought down prices somewhat, but prices were still well above pre-energy crisis levels. This sentiment was echoed in November 1981, when the CEO of Exxon also characterized the glut as a temporary surplus, and that the word "glut" was an example of "our American penchant for exaggerated language". He wrote that the main cause of the glut was declining consumption. In the United States, Europe, and Japan, oil consumption had fallen 13% from 1979 to 1981, "in part, in reaction to the very large increases in oil prices by the Organization of Petroleum Exporting Countries and other oil exporters", continuing a trend begun during the 1973 price increases.

After 1980, reduced demand and increased production produced a glut on the world market. The result was a six-year decline in the price of oil, which reduced the price by half in 1986 alone.

Production

Non-OPEC

During the 1980s, reliance on Middle East production dwindled as commercial exploration developed major non-OPEC oilfields in Siberia, Alaska, the North Sea, and the Gulf of Mexico, and the Soviet Union became the world's largest producer of oil. Smaller non-OPEC producers including Brazil, Egypt, India, Malaysia, and Oman doubled their output between 1979 and 1985, to a total of 3 million barrels per day.

United States

In April 1979, U.S. President Jimmy Carter signed an executive order to remove price controls from petroleum products by October 1981 so that prices would be wholly determined by the free market. Carter's successor, Ronald Reagan, signed an executive order on 28 January 1981, which enacted that reform immediately, allowing the free market to adjust oil prices in the United States. That ended the withdrawal of old oil from the market and artificial scarcity, which encouraged an increase in oil production.

Additionally, 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, 25 percent of all U.S. oil production.

North Sea

Phillips Petroleum discovered oil in the Chalk Group at Ekofisk, in Norwegian waters in the central North Sea. Discoveries increased exponentially in the 1970s and 1980s, and new fields were developed throughout the continental shelf.

OPEC

From 1980 to 1986, OPEC decreased oil production several times in an attempt to maintain oil's high prices. However, it failed to hold on to its preeminent position, and by 1981, its production was surpassed by non-OPEC countries. OPEC had seen its share of the world market drop to less than a third in 1985, from about half during the 1970s. In February 1982, the Boston Globe reported that OPEC's production, which had previously peaked in 1977, was at its lowest level since 1969. Non-OPEC nations were at that time supplying most of the West's imports.

OPEC's membership began to have divided opinions over what actions to take. In September 1985, Saudi Arabia became unhappy with de facto propping up prices by lowering its own production in the face of high output from elsewhere in OPEC. In 1985, daily output was around 3.5 million bpd, down from around 10 million in 1981. During this period, OPEC members were supposed to meet production quotas in order to maintain price stability; however, many countries inflated their reserves to achieve higher quotas, cheated, or outright refused to accord with the quotas. In 1985, the Saudis tired of this behavior and decided to punish the undisciplined OPEC countries. The Saudis abandoned their role as swing producer and began producing at full capacity, creating a "huge surplus that angered many of their colleagues in OPEC". High-cost oil production facilities became less or even not profitable. Oil prices as a result fell to as low as $7 per barrel.