Oil Prices

April 4, 1986

Report Outline
Economic Fallout
Market Aftershocks
Beyond Economics
Special Focus

Economic Fallout

Winners and Losers Here and Abroad

A tremendous shock wave has once again hit international oil markets. A reverse image of the price increases of the 1970s that brought inflation, recession and trade deficits to oil-importing countries, the latest tremor consists of a collapse of petroleum prices. The value of a barrel of oil has been more than halved since last autumn, falling from just under $30 a barrel to below $11 a barrel by April. Many analysts expect the tumble to continue—barring unexpected agreement among OPEC members on production quotas and a drastic lowering of output, especially by Saudi Arabia. OPEC ministers will meet in Geneva April 15 to try again to reunify the cartel which pushed oil prices to record heights in the early 1980s. In real terms, taking inflation and a weakened dollar into account, oil prices are now the lowest since 1973.

Just as the abrupt price increases of that time transformed much of the world's economy, the present fallout is similarly far-reaching and quixotic, helping one industry or locality and hurting another. Cheaper oil is easing the fear of a renewal of inflation in the industrialized countries, nudging interest rate downward and restoring economic confidence. The prospect of a resumption of economic growth without a significant increase in the cost of living prompted Japan, West Germany and the United States early in March to reduce the discount rates of their central banks by half a percentage point.

American commercial banks quickly followed suit, cutting their prime interest rate on loans to choice commercial customers to 9 percent, down from 9.5 percent, further stimulating an already vigorous stock market. The Consumer Price Index dropped four-tenths of a percent in February, the biggest monthly decline in 32 years, reflecting cheaper oil and food. The average nationwide price of unleaded gasoline at the pump, as reported by Oil & Gas Journal, dropped below $1 a gallon in early March for the first time since 1979. The Commerce Department reported the oil situation was one factor holding the U.S. trade deficit in February 25 percent below the previous month's figure. Better savings could be expected in the months ahead as long-term and thus costly delivery contracts expire.

ISSUE TRACKER for Related Reports
Oil and Gasoline Prices
Jun. 22, 2012  U.S. Oil Dependence
Nov. 01, 2011  Future of the Gulf States
Jan. 04, 2008  Oil Jitters Updated
Jul. 2007  Energy Nationalism
Sep. 30, 2005  Domestic Energy Development
Jan. 24, 2003  Oil Diplomacy
Aug. 07, 1998  Oil Production in the 21st Century
Aug. 23, 1991  Oil Imports
Oct. 30, 1987  Persian Gulf Oil
Apr. 04, 1986  Oil Prices
Dec. 23, 1983  Quest for Energy Independence
Sep. 23, 1983  OPEC: 10 Years After the Arab Oil Boycott
May 29, 1981  Western Oil Boom
Aug. 25, 1978  Oil Imports
Feb. 10, 1978  Oil Antitrust Action
Dec. 17, 1976  Alaskan Development
May 17, 1974  Arab Oil Money
Mar. 15, 1974  Oil Taxation
Jul. 18, 1973  Offshore Oil Search
Mar. 28, 1973  Persian Gulf Oil
Nov. 01, 1972  Gasoline Prices
Oct. 14, 1970  Fuel Shortages
Nov. 12, 1969  Alaskan Oil Boom
Dec. 11, 1968  Oil Shale Development
Oct. 26, 1960  World Oil Glut
Sep. 10, 1958  Middle East Oil
Oct. 30, 1951  Oil Nationalization
Aug. 11, 1950  Oil Imports
Apr. 23, 1947  Oil of the Middle East
Jan. 22, 1946  Offshore Oil
Mar. 09, 1944  Oil Supply
Dec. 24, 1935  Oil in World Politics
May 07, 1931  Control of Production in the Oil Industry
Mar. 27, 1929  The Oil Leasing Policy of the New Administration
Jun. 08, 1927  Oil Conservation and Stabilization
Feb. 08, 1926  The Mexican Land and Petroleum Laws
Apr. 18, 1925  The Price of Gasoline
Feb. 11, 1924  Background of the Oil Lease Cases
Sep. 01, 1923  Gasoline
Economic Crises
Exports and Imports
International Energy Trade and Cooperation