What Happened in the Last 30 Years of the 20th Century

In the late 1970s, the Organization of Petroleum Exporting Countries (OPEC) was formed and immediately raised the price of oil dramatically. This disrupted the economies of many countries??especially the United States??which at the time was importing 33% of its oil. To counter OPEC, many importing countries began to conserve energy and began looking towards alternative sources of energy, such as coal, grain alcohol, wind, tar sands, nuclear, and solar energy, and began using new techniques to enhance petroleum recovery.

Drilling activity increased throughout the world during this period, particularly in the United States where thousands of wells were drilled based on anticipated high petroleum prices. Under boom conditions, such as those that existed in 1981, quality drilling prospects were simply not available at reasonable prices, yet unaware American investors continued to pour millions into drilling programs.

In the early 1980s, OPEC reversed their strategy to one of oversupply, partly because it needed increased revenues, but primarily to destroy their competition. OPEC flooded the world markets with cheap oil in order to knock out oil producers throughout the world, thereby crippling the competition and rendering importing countries more dependent than ever upon imported oil. This action created an oil glut worldwide. OPEC drove the price down from a high of $38 per barrel to under $10 per barrel.

The independent oil companies in the United States were devastated. Tens of thousands of wells were plugged, synthetic fuel projects were cancelled, enhanced oil recovery projects were shelved, and thousands of oil companies either closed their doors or put their growth plans on hold. OPEC's strategy worked! OPEC has since raised the price per barrel, but the U.S. petroleum industry has yet to recover. Domestic production is at a 35 year low and drilling activity is just beginning to recover from a 50 year low.

In 1990's, oil imports to the USA soared well over 50% of oil consumed, an all time record. According to ex-Interior Secretary Donald Hodel, "Oil Shock III is staring us down. We are heading for a period of time when we will again be sitting in gas lines." While it is unfortunate that the U.S. Government is unwilling to administer a sound domestic energy policy, wise investors who have established a strong position in the petroleum business are positioned to profit greatly from this situation.