New York Paper - The Law of Supply and Demand

The law of supply and demand is, in general terms, that law which governs the price of any commodity in an unrestricted competitive market. There are several variables which, for the purpose of this discussion, will be defined only as they apply to the petroleum industry: Production: The volume of petroleum that is moved from leases. Stocks: The volume of petroleum that is in the hands of the tank farm and pipeline companies. Inventory: The value of the stocks at the market. Consumption: The indicated delivery of oil to others than those who hold stocks. Demand: The potential absorbing power of the consuming market. Demand is the expression of the needs of the consumer and may depend on the economic value of the oil to the consumer. In times of low prices, the demand is the same as the consumption but during periods of high prices or deficiency in supply, the demand may be greater than consumption. A general expression of the law is as follows: production or consumption Some relation between stocks and or controls price or demand inventory The Law as Applied to Crude-oil Market The above general expression of the law shows that there are six relations between variables that must be investigated in any attempt to establish the exact status of price control at any time. Production vs. Consumption If stocks of crude oil were very low, so that the flow of oil to the market was directly from the producer to the consumer and not, in a large measure, through stocks, some relation between production and consumption would be proportional to price changes. We have no criterion whereby we can tell, at present, what volume of stocks and production