Control of Production in the Oil Industry

Report Outline
World Production of Crude Petroleum
Trend of Oil and Gasoline Prices
Voluntary Measures of Control
State Regulation of the Oil Industry
Federal Aid to the Oil Industry
Special Focus

Five years of mounting production in the oil industry, of supply outrunning demand, and of declining prices have brought this basic industry to a condition which excites grave concern and has evoked widespread public and private activity. Severe competition, the discovery of new oil fields and pools and of new pools in old fields, and refinements in technology have combined since 1926 to cause a heavy overproduction of petroleum which has led in turn to a series of price reductions. This condition is held to be detrimental both to the rights of the public in a natural resource that is being rapidly depleted and to the economic interests of the industry. In these circumstances the producers have taken a number of steps to limit production, but have been hampered in such action by state and federal antitrust laws. State regulatory bodies in Texas, Oklahoma, and California—the three largest oil-producing states—have brought production under a measure of control by the adoption and enforcement of provisions against waste, proration, unit operation, and other regulation.

At Washington the Federal Oil Conservation Board, created by President Coolidge in 1924, the Bureau of Mines, the conservation bureau of the Geological Survey, the minerals division in the Department of Commerce, and the voluntary committee on petroleum economics have been coöperating with the oil industry in the investigation of means of control. President Hoover's oil conservation policy went into effect on March 12, 1929, and subsequently Congress granted the federal government authority to participate in unit operation and development of single oil pools involving public lands and to extend prospecting permits, in the discretion of the Secretary of the Interior.

On April 4, 1931, the Circuit Court of Appeals at St. Louis approved the proposed merger of the Standard Oil Company of New York and the Vacuum Oil Company, a decision which, if upheld by the Supreme Court, may encourage other oil-company consolidations in the effort to reduce domestic competition. And on April 13, 1931, the United States Supreme Court held that no monopoly existed as a result of cross-licensing agreements between numerous oil companies for the manufacture of gasoline by the cracking process. Meanwhile, proposals to relieve oil operators from the prohibitions of the federal antitrust acts in certain contingencies, with proper safeguards in the public interest, and for uniform state legislation to permit or compel coöperative or unit development and operation of oil and gas pools, with the purpose of preventing waste, have been made by committees of the Federal Oil Board and the American Bar Association, respectively.