The Oil Shortage That Wasn’t

FOUR MONTHS ago, nearly everyone expected that if fighting began in the Persian Gulf oil prices would go through the roof. As the January 15 deadline approached, the price of oil climbed in step with mounting fears of an impending oil shortage. On the first business day of 1991 oil was $28.44 per barrel. When the New York Mercantile Exchange closed on January 16— just hours before the bombs started falling—oil prices had hit $32 per barrel. But the first casualty of war turned out to be high oil prices: when U.S. commodity markets opened the next day, the price of oil had fallen a sharp $10.56, to $21.44 per barrel— just about where it had been on August 1 of last year ($21.54). The price of oil plummeted when traders realized that the air war was going well and that oil stocks in industrial countries were at record levels.

That was the last thing the pundits had expected. “Failing a last-minute Mideast miracle, higher gasoline prices over the next few days look like a sure bet,” the Wall Street Journal worried on January 16. “Prices will definitely go up,” Bill Ligon, manager of the Texas Service Station Association, told the Journal. Though the price appears stable, a significant threat to oil supplies “will wake up the market pronto,” said Cheryl J. Trench, executive vice president of Petroleum Industry Research Foundation.

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Richard Miniter

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FOUR MONTHS ago, nearly everyone expected that if fighting began in the Persian Gulf oil prices would go through the roof. As the January 15 deadline approached, the price of oil climbed in step with mounting fears of an impending oil shortage. On the first business day of 1991 oil was $28.44 per barrel. When the New York Mercantile Exchange closed on January 16— just hours before the bombs started falling—oil prices had hit $32 per barrel. But the first casualty of war turned out to be high oil prices: when U.S. commodity markets opened the next day, the price of oil had fallen a sharp $10.56, to $21.44 per barrel— just about where it had been on August 1 of last year ($21.54). The price of oil plummeted when traders realized that the air war was going well and that oil stocks in industrial countries were at record levels.

That was the last thing the pundits had expected. “Failing a last-minute Mideast miracle, higher gasoline prices over the next few days look like a sure bet,” the Wall Street Journal worried on January 16. “Prices will definitely go up,” Bill Ligon, manager of the Texas Service Station Association, told the Journal. Though the price appears stable, a significant threat to oil supplies “will wake up the market pronto,” said Cheryl J. Trench, executive vice president of Petroleum Industry Research Foundation.