The Crisis in the Petroleum Industry

June 7, 1927

Report Outline
Causes of Chronic Over-Production of Crude Oil
Statistical Analysis of Over-Supply Situation

“Overproduction of crude oil, that bugaboo of the oil producer which has so often and so violently harassed the petroleum industry of the United States, has recurred this year in a form so malignant as to seem to be without precedent in all past history. And again with equally unprecedented earnestness the producers have renewed the old debate as to how best these recurrent attacks may be avoided or their ill effects diminished. Overproduction is like the weather, everyone talks about it, but no one has ever really done anything about it.”

Thus reads the opening paragraph of a letter of May 2, 1927, signed by Walter C. Teagle, president of the Standard Oil Company of New Jersey, and W. S. Farish, former president of the American Petroleum Institute. The letter is significant because it virtually represents a plea filed with the Federal Oil Conservation Board for government assistance to meet the present situation. This is in itself a novel and noteworthy feature of the present petroleum situation.

Falling Crude Oil and Security Prices

The present over-supply started to weigh down the market last fall, necessitating six price cuts between November 2, 1926 and April 13, 1927. The final reduction carried the average grade down to $1.05 per barrel, as compared with $2.37 prior to November of last year—a reduction of 55.6 per cent. Since then some price cuts have been canceled, indicating that bottom levels of crude prices may have been reached, at least for the time being.