When oil prices plummeted for weeks due to an outbreak of the Corona virus (Covid-19), and Saudi Arabia's decisions to dump markets; It was not the first time that this had happened.
And in his report published by the Spanish newspaper "Lavanguardia"; The writer Gonzalo Tokari said that while the benchmark price of a barrel of oil in Europe fell by more than 70% between March 2 and March 31, specialists were well aware of what might result in that in the future. Did the world witness such a collapse in oil prices before?
present time
On April 20, 2020, it will be the first day that North America's oil price, known as West Texas Crude futures, has a negative price (minus $ 38), since the beginning of future oil sales in 1983. While Brent crude prices are lower From $ 17 that month; Because of the price war between Saudi Arabia and Russia, which raised the oil supply to record levels, in exchange for a sharp decline in demand due to the effects of the Corona virus on economic activities.
Prices returned to the rise again after the "OPEC Plus" agreement to cut production entered into force from last May. OPEC Plus agreed to cut production by about ten million barrels per day, equivalent to 10% of global oil production in May and June, and then reduce the cuts later.
And "OPEC Plus" will hold a teleconference early tomorrow, Thursday, to discuss its policy, instead of an original date to be settled next week, according to Reuters.
1860: An American collapse
The writer reported that in 1860 the price of a barrel of oil in the United States fell more sharply than in March.
Prices have fallen by almost 80% over the course of the entire months of the year, and the crisis has continued to exceed the price collapse of 98%, given the slap in the oil market the following year.
Perhaps the specialists - as the author adds - were not exaggerated when they asserted that the barrels of wood were worth more than what was contained in "black gold", because the world had never experienced such a collapse in oil prices until 1931.
And the author added that the main explanation for the 1860 crisis lies in the design of the leading inventor and industrialist Edwin Drake the technique of extracting crude oil, and his competitors adopted this technique without any hesitation. Neither low oil prices nor high inflation at the start of the American Civil War in April 1861 prevented Drake from continuing to work on oil recovery technology. Today the world is surprised that Drake has not patented it, so it is not surprising that he died penniless.
The writer pointed out that the restructuring of the modest oil sector at the time was so enormous that in 1863, despite the increasing demand and preference for the use of oil over alcohol in the production of kerosene; Production began to decline. Consequently, many companies went bankrupt, and others did not even know how to avoid flooding wells.
Two crises before the twentieth century
Until the twentieth century, the world witnessed two severe crises regarding the drop in the price of crude oil, but they were not as severe as the one that followed the 1860 crisis.
The first crisis occurred in 1866, as a result of the double discovery of oil sites in Pennsylvania, where production became much faster than demand. Oil prices were also affected by the inflation that started in 1864, and was strengthened more since 1865, the last year of the American Civil War.
The author mentioned that Robert McNally documented the details of the second resounding decline (the second crisis) in the oil prices referred to previously in his book, "Crude Oil Price Fluctuations", between 1890 and 1892.
Meanwhile, John Davison Rockefeller, who controlled most of America's major refiners and pipelines through Standard Oil, tried to avoid the crisis in coordination with Pennsylvania's oil producers, then the world's leading oil region.
Although these parties were able to reduce their production by more than 25%, this was not enough; The alliance lasted for only one year until 1888, and prices fell dramatically after a short period.
Between 1890 and 1892, the price of a barrel of oil collapsed due to price wars between the United States and Russia, and a reduction in imports imposed by the severe recession of European powers, beginning with France in 1889.
It was the beginning of the crisis that struck the United States in 1893, when the stock market collapsed, hundreds of banks suspended payments, and with millions of unemployed, the recession that did not end until 1897 began.
Production more than demand
The writer indicated that crude oil prices have risen since the end of World War I, but with increased production recorded in Texas, California, and Oklahoma, the market collapsed in 1929. After that, a huge new oil field began operating in Texas in 1930, and the prospects of a large, long-term recession increased in the year 1931.
The price of a barrel of oil was then 80% lower than it was just ten years ago, and the quantities of oil exceeded what people and companies wanted to buy much.
To protect the sector, which is one of the main sources of employment, geo-independence and national prosperity, Franklin D. Roosevelt manipulated prices by restricting production, reducing competition between operators and oil factories in different states, and enhancing the efficiency of extraction technologies through regulations that improve the profitability of wells in the long run Long, says the author.
Additional setbacks
The writer explained that the next link in the chain of crude oil collapses is the setback that occurred between 1981 and 1986.
This setback dates back to the oil crises of the 1970s and the beginning of the war between Iraq and Iran in 1980, which are major producers and exporters of black gold.
It was then that the severe collapse of the barrel began in April 1981, just three months before the recession began in the United States, which caused unemployment to jump to levels the world had not seen since the Great Depression.
The writer also stated that in 1986 - a year after Saudi Arabia unreasonably increased production to expand its market share - the price of a barrel decreased by almost 75% (prices fell from $ 27 to ten dollars)
Beginning from 1992 to 1997, the price of a barrel of oil fell sharply again (prices fell to less than $ 16), mainly due to three factors:
The first factor is related to the way the price was inflated during the first Gulf war between Iraq and Iran (1980-1988). At that time, both Iraq and Kuwait were major producers and exporters, and overnight all data changed.
The second factor is the combined effect of the second Gulf War of the 1991 liberation of Kuwait and the return of Kuwaiti exports to pre-war levels, in 1994.
The third factor is related to the short-term crisis, but it is devastating for Southeast Asia in 1997 and 1998 (oil prices fell from about $ 37.7 to $ 10.4). At that time, South Korea's GDP decreased by 5.5%, and unemployment doubled three times, although its economy regained The lost wealth in 1999.