World Oil Glut

Report Outline
Production and Price Situation in Oil
Impact of Oil Glut on United States
Political Aspects of Commerce in Oil

Production and Price Situation in Oil

Discovery of vast new petroleum deposits and continued existence of developed production capacity in excess of consumption demand have created a condition of actual and potential oversupply in the oil industry that is unprecedented. The worldwide ratio of proved reserves to annual production has widened from about 20 to 1 before World War II to nearly 43 to 1 today. At the end of 1959 the industry had a “spare capacity at the wellhead” approximating eight million barrels a day—one-half in the United States and Canada and the remainder in Venezuela and the Middle East. The excess production capacity “intensified competition for outlets and was a major cause of weak prices in the international markets.”

The oil surplus has produced dissatisfaction among both producing and consuming countries. A British petroleum expert pointed out recently: “The basic structure of the international oil business has become economically impossible and politically dangerous. Producer countries are growing restless with falling prices and insufficient sales, while consumer countries complain that oil prices are far too high and no longer reflect actual market conditions.”

Cuts in posted prices of Middle Eastern oil last August were vigorously protested by the producing countries in that region. They were joined recently by Venezuela, South America's largest oil producer, in formation of an organization which is considering an international compact to limit production as a means of holding up prices, and additional action to sustain revenues paid into government exchequers by the international oil companies holding concessions in the respective countries.