Petroleum Products - Economic Aspects of the Gasoline Situation (with Discussion)

The tank car price of gasoline today is controlled by oil in the ground, rather than by stocks of gasoline or methods of refining. Previous to the commercial cracking of fuel oil, there was a normal and continuous relation between gasoline stocks, consumption and prices. From the beginning of the new cracking era in 1923 to the summer of 1926 there was a changing relationship, growing toward a correlation between the potential gasoline in storage and the price of gasoline. Since the development of large reserves of shutin production in Wyoming, California, Seminole, West Texas and Venezuela, the relationship between stocks of gasoline and gasoline prices has disappeared. The extreme depression of the Group 3 price can only be accounted for by oil which is not being produced but which we fear may be produced at any time. In Fig. 1, the curve of gasoline stocks is simply stocks of finished gasoline. The curve of potential gasoline is made by taking 40 per cent. of all stocks except gasoline, kerosene and lubricants, adding to that stocks of finished gasoline and dividing the sum by total gasoline con-sumption to get the months' supply of gasoline at the current rate of consumption. The price curve is the lower figure given by the National Petroleum News for the first quoted date of each month, with the price scale reversed. Stocks of potential gasoline have decrrased from 17 months' supply at the peak of 1924 to a low of 7 months' supply during the past summer, yet the low immediately precedes the lowest price for gasoline since it was a waste product. The tendency of the price curve to parallel the curve of potential supply is quite pronounced until the summer of 1926, since which time they have abruptly separated. The curve of gasolinct stocks is equally remarkable in relation to price when it is considered that total consumption for the year 1927 is almost exactly twice that of 1924. Clearly a new factor has been introduced. There is no possible factor to account for this distortion except known reserves of oil in ground storage, and therefore, until such time as the Bureau of Mines or the