Thanks to stronger oil demand 2013 will not mirror 1986

It was one of the great oil shocks of all time, but a negative shock: in 1986, the oil price halved as Saudi Arabia opened the taps.
The Soviet Union collapsed not long after; the major oil exporters and international oil companies endured a lost decade and a half.
Now, Professor Paul Stevens of the United Kingdom think tank Chatham House, writing in the Financial Times has pointed to the danger of a similar crash. But does 2013 really look like 1986?
The dramatic Saudi action was a response to three intersecting trends that had made the kingdom's policies untenable. Following the 1973-74 and 1978-80 oil crises, the price went up by a factor of 10, plunging the industrialised world into deep recession.
Consumers sought more efficient vehicles; large quantities of oil were still burnt for electricity generation and could be easily replaced with gas, coal and nuclear power. Global oil consumption fell 10 per cent from 1979 to 1983.
Oil production outside Opec responded to the high prices, accelerating high-cost projects envisaged before the crises. New technology unlocked offshore fields in the North Sea and Mexico, and in Alaska's Arctic tundra, while drillers returned in force to the old hunting grounds of Texas. Opec had held half of the world oil market in 1973-74; by 1985, it was down to barely a quarter.
Opec tried desperately to defend an unrealistic price target, about US$60 per barrel in today's terms.
But while Saudi Arabia and its Gulf neighbours cut output, other Opec members such as Nigeria, Algeria and Iraq took advantage. Saudi Arabia produced 10.3 million barrels per day (bpd) in 1980, but by 1985 it was down to 3.6 million bpd. At that rate, its exports would soon have reached zero.
And so in September 1985, the Saudi oil minister Ahmed Zaki Yamani, who had warned all along that Opec's price targets were unrealistic, sharply increased production. He intended to cause a price crash that would hurt Saudi Arabia's Opec rivals, bring them into line and burn off high-cost competitors elsewhere.
The strategy worked - eventually - but only after more than a decade of low prices and another price crash in 1998. For his pains, Mr Yamani was sacked by the late King Fahd Al Saud in October 1986.
Today's situation is alike and yet not alike - more a pale shadow of 1982 than a doppelganger of 1985.
Mr Stevens argues that rising competition and anaemic demand will lead to political upheaval in oil-exporting countries - and so to more volatile (but presumably lower) prices. However, this is not inevitable.
Prices are still strong. Saudi Arabia is facing competitors within Opec, notably Iraq, but this is so far mostly a future challenger, facing significant hurdles.
Sanctions on Iran and the revolution and post-war protests in Libya have so far rescued the Saudis, who have had to cut back only moderately, from 10 million bpd in mid-last year to about 9.1 million bpd now.
North American shale oil is driving strong non-Opec growth, and, contrary to what many commentators say, will continue to grow even if prices fall significantly. But other major non-Opec players such as Brazil have so far disappointed.
The biggest contrast with the 1980s is that global oil demand is still rising, driven by the Asian tigers and the Middle East itself. Electric, hybrid and gas-powered vehicles are making inroads but it is difficult to see a repeat of the early 1980s' 10 per cent drop in four years - comparable to removing the whole of China.
So Opec should still have time to set a realistic target - almost certainly lower than $100 per barrel - and adjust production, government budgets and development plans accordingly. Gradually massaging prices lower, to discourage competitors, would be wiser than for the Saudi oil minister, Ali Al Naimi to have to re-enact Mr Yamani's price war.
 
Robin Mills is the head of consulting at Manaar Energy, and the author of The Myth of the Oil Crisis and Capturing Carbon