The dramatic price increases in the 1970's spurred major efforts to develop
alternative energy sources and to identify new opportunities to use energy more
efficiently. These efforts were given an additional boost by President Reagan's
action to decontrol oil markets in 1981. As a result of market forces, world
dependence upon OPEC oil declined significantly from about 28 million barrels per
day in 1980 to about 17 million barrels per day by 1985. Despite efforts by OPEC
to sustain high prices, oil prices have fallen continuously since 1981.

Most of the burden of reduced OPEC production was absorbed by Saudi Arabia, whose
crude oil production (excluding natural gas liquids) fell from about 10 million
barrels per day in 1980 to close to 2 million barrels per day in the summer of
1985. This level of production was well below Saudi Arabia's production share
agreed to by OPEC ministers in January 1984. In the fall of 1985, Saudi Arabia
abandoned its role as "swing" producer. Between August and December 1985, Saudi
Arabia doubled its crude oil production from about 2.3 to about 4.7 million barrels
per day.

In December 1985, OPEC nations decided to secure and defend their market share,
meaning that OPEC would increase its oil production and drive down prices by
competing with non-OPEC producers. Following that meeting, world oil prices
collapsed from about $25 per barrel to about $10 to $15 per barrel.

Through July 1986, internal conflicts within OPEC and differing interests among the
13 member nations prevented an agreement on production quotas to support higher oil
prices. In August, OPEC reached a temporary agreement to reduce production by
several million barrels per day through October 1986. If the agreement holds,
world oil prices could temporarily stabilize at about $15 per barrel. It is
uncertain at this time whether OPEC countries will avoid the temptation of cheating
on production quotas. Quota violations would likely lead to another price war.

With about 8 to 10 million barrels per day of excess oil production capacity
worldwide, and only a minimal projected increase in world oil demand in the near
term, world oil prices could remain low for some time.