Economics - Production Cost as a Factor in Oil Economics

The existing large stocks of raw materials have induced misgivings in the minds of many as to near-view prospects for a return to higher commodity price levels. Until stocks are materially reduced—and this operation will probably extend over a protracted period—a buyers' market will continue. Meanwhile the matter of production cost becomes more and more a factor of consequence to industrial management, finance and the investing public. With many commodities a general level of costs exists with which the public has been made familiar. Certain conditions surround these industries which, at the outset, determine whether there is a basis for sound commercial results. In other words, it can generally be determined in advance whether or not the cost of production is sufficiently below the normal average price to return a reasonable profit over the years. With all domestic agricultural products there are available exhaustive Government studies in the field of production costs. Such figures as the average cost of wheat, cotton, sugar, etc., are reiterated constantly. There are many products of foreign origin such as coffee, rubber, raw silk, etc., the production costs of which are to most of us matters of deep mystery. Forest products also are so diversified that few but specialists know what a thousand feet of lumber really cost at the mill, especially where remotely located. However, with respect to products of mines, production cost information has been widely disseminated. The literature is replete with such data. Here we find that without any special help from outside agencies the industry itself has given publicity to a large variety of cost figures. For example, we know, or know where we can ascertain, the cost of producing a pound of copper from Chile, Arizona or the Lake Superior district. In many cases we can secure from the company reports a vast amount of detail leading up to the cost per ton of ore and the cost per unit of the metal yield. These records are of great assistance to the mining industry as a means of estimating on new exploitations. This industry has been production-cost-minded almost from the beginning.