Economics - Stabilization of the Petroleum Industry

The petroleum industry is not peculiar in that it has a problem of stabilization. Economic conditions, not only in the United States but throughout the entire world, are unstable. However, the petroleum industry together with coal mining and agriculture has experienced a longer period of depression than most of the others. It is significant to note that industries engaged in the production of basic raw materials, the primary industries, have not enjoyed as much prosperity since the war as the secondary industries, or those engaged in the fabricating of raw materials and their distribution. The problems of the primary industries are not all the same. Overproduction has existed for several years in agriculture but its causes are not the same as those that have brought about overproduction in the petroleum industry. Unlike agriculture, the institution of property rights and the migratory nature of oil are responsible for the oil man's troubles. Our laws permit the owner of the oil and gas rights, with certain exceptions, to drill when and where he pleases. Since oil is migratory, the adjacent property owner must go and do likewise—drill. This condition spread over a wide area soon brings to the surface more petroleum than can be readily absorbed by the market, creating a condition of overproduction. It is significant to note at this place that when overproduction occurs the complete units in the industry suffer least. A complete unit is taken here to mean a corporation engaged in all the phases of the industry through production, transportation, refining and marketing. In the present depression the complete units in the industry are not in as bad financial condition as those engaged in single phases of the industry. The same thing can be said of the zinc industry, the lumber industry, and the other industries where there are organizations engaged in all the steps through the production of raw materials to the marketing of the finished product. The reason for this is that the complete units are in better position to coordinate all the factors that would work for a stabilized condition than are the units that are engaged in a single branch of the industry.