Petroleum Economics - Oil Demand, Supply and Price in 1928

From the viewpoint of practical economic engineering the main value in studies of demand and supply lies in the information they give concerning the next movement of price. The title of this discussion is too comprehensive for detailed analysis and it will, therefore, be narrowed to the question of price measurement. The oil operator is interested primarily in net profits. Prices, costs and production determine them. Production is here used in its broadest sense. It includes refining and marketing. It is an operating problem. Prices and costs are economic considerations. Though costs are an important element of prices and profits, the subject is too large to be treated in a brief paper of this sort. In the long run, costs govern prices, but for the purpose of gaging prices in the immediate future the relationship of current demand and supply are more significant. Operating, expansion, retrenchment, sales and storage policies of oil companies are largely influenced by the feeling of executives concerning this relationship. The stockholders of companies whose executives are wrong may suffer. Investors who err in their judgment may likewise lose. On the other hand, oil companies and investors who appraise these factors correctly and move accordingly will profit. It is an important subject worthy of careful consideration. The author has been asked to discuss the subject for 1928. From the beginning of the year until the first of June, as illustrated by Fig. 1, over-supply prevailed in the face of restricted production, but from June to September, with record consumption, demand slightly exceeded supply and oil came out of storage in the United States as a whole. One of the main problems of the oil man is to decide whether this condition will continue and what the next movement of prices will be. Before he can do so he must have an understanding of the underlying conditions and of the facts that led to the present situation. With these facts in mind he is in a position to measure the effect of the present relationship of demand and supply on price and is afforded a perspective that may enable him to look ahead for a short period of time. The practical