We will also discuss how oil became just another commodity traded at the New York Stock Exchange and how futures trading and restructuring in the oil industry led to the end of one of the seven sisters, Gulf Oil. Finally, we will discuss the third oil shock which this time was in the opposite direction of the first two — with falling oil prices! The question was how low would it go? The falling prices and the “good sweating” to the OPEC and non-OPEC producers, the elation of consumers, and the role played by George H. Bush in stabilizing the market will be discussed. We will conclude the lesson with the sad end of Yamani as Saudi Oil Minister, and the cessation of the “good sweating,” and the Iraq-Iran war.
This concluding lesson will discuss the Gulf Crisis/War and the collapse of the Soviet Union that left the US as the only superpower. We will also discuss the mergers and acquisitions that led to a few but much bigger players, talk about the new hydrocarbon finds (oil and natural gas), and explore where we are with respect to “peak oil.” Since energy and the environment are intimately tied together, we cannot conclude the course without a discussion of the environmental impact of fossil fuel use. Finally, you will outline what have been the major oil issues since The Prize that you will include in a continuation of “The story of oil (the epic quest for oil, money, and power),” as well as the major oil topics/events over the period 1850s to 2008 that you would have included in the book and why.
Major Lesson Themes
- Oil becomes just another commodity
- Prices are more volatile due to nature of supply & demand (Rockefeller)
- Traders discover a price. Producers can influence price by controlling production
- Oil, inflation, & interest rates
- Risk is openly priced
- Industry returns to drilling for oil on Wall Street
- Sets the stage for major consolidation during 1990s
- Saudi Arabia emerges as dominant player
- Lower oil prices
- Benefits for consumers
- Disadvantages for oil producers
- Unique position of the USA
- Oil trades around $20 for next 15 years (companies assume less)
- Collapse of Soviet Union in 1989
- Emergence of America as sole superpower
Students should be able to do the following after completing Lesson 11:
- explain what led to the decline in demand and prices in the early 1980s;
- list the factors that led to the falling oil prices;
- account for how oil became just another commodity and why companies found it easier to explore and drill for oil in Wall Street;
- list some of the major unintended consequences of the falling oil prices;
- indicate the importance and impact of the restructuring that occurred in the oil industry;
- account for the role of T. Boone Pickens in the restructuring and the demise of Gulf Oil;
- explain the options available to OPEC and their consequences during the good sweating;
- indicate the change and objectives in Saudi strategy from price to volume defense;
- distinguish between the third and first two oil price shocks;
- explain the “good sweating” and how the market was finally stabilized;
- account for the end of Yamani, the good sweating and the Iraq-Iran war;
- list the major events of the miracle year, 1989;
- articulate why Saddam Hussein invaded Kuwait and what his ultimate intentions were;
- explain why the Iraq invasion and the Gulf war did not have a significant oil shock;
- justify why it was important to confront Saddam on the Kuwait invasion;
- explain how America was able to redeem its image.
What is due for Lesson 11?
This lesson will take us one week to complete. Please refer to the Course Syllabus for specific time frames and due dates. Specific directions for the assignment below can be found within this lesson.
|Activity||Location||Submitting Your Work|
|Read||The Prize: Chapters 35, 36, 37, & Epilogue - (Select Sections)
The Quest: Chapter 8 - (Select Section)
|Read||Online Lesson 11: Supply Disruptions, Price Shocks & Oil Market Trading||No Submission|
|Complete||Lesson 11 Participation Activity||Canvas|
|Take||Lesson 11 Quiz||Canvas|
Each week an announcement is sent out in which you will have the opportunity to contribute questions about the topics you are learning about in this course. You are encouraged to engage in these discussions. The more we talk about these ideas and share our thoughts, the more we can learn from each other.