Economics - Economics of the Crude Oil Potential in the United States (With Discussion)

It is the purpose of this paper to attempt to establish three theses which may be stated in advance as follows: 1. The crude oil potential is the accumulation of surplus initial production. 2. The crude oil potential is a semi-inventory and therefore is a causal factor in the price of crude petroleum. 3. The price of crude petroleum no longer correlates with above-ground inventories but does correlate with corrected inventories (i. e., above-ground storage plus the inventory equivalent of the crude oil potential). The factors and principles set forth in this study are thought to yield an approximate answer to a number of questions of active interest in the petroleum industry today, to wit: (a) How long would be required to eliminate the potential if all drilling ceased? (b) What would be the indicated crude oil production of the United States in 1931 if proration were abandoned? (c) What economic change would be necessary to warrant a higher price for crude oil? Definitions For the purposes of this study the following definitions may be stated: The crude oil potential in the United States is the quantity of oil that all the oil wells would make the first 24 hr. if permitted to flow unrestricted. The surplus potential is the above-mentioned quantity minus the volume currently produced. Initial production is the first day's unrestricted flow of an oil well. Aggregate initial production is the sum of the initials of all wells completed during a year. Surplus initial is the initial not needed to bring production into balance with demand. The surplus initial is equal to the crude oil potential minus the current rate of production. The annual production-equivalent of the crude oil potential is the volume of oil that would be produced in one year if all wells were permitted