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By Joseph E. Pogue

Over a period of years the writer has presented a number of studies1 on various aspects of proration, in a progressive attempt to analyze critically and constructively the economic complexities of this interesting institution, which in a decade has revolutionized the economics of oil production in the United States. In the course of the investigations leading to these papers, the changing nature of proration and the principles underlying its evolution have gradually become clear, so that it is now possible to depart from the analytical method and to construct a synthesis of the steps that, if furthered by the industry, should carry proration past the economic hazards that still surround it to the goal of maximizing the value of the petroleum resource to the industry and the public alike. Nature of Proration Proration literally means the allocation of demand among competing producers on a pro rata basis, but the term now carries a much broader significance for it is employed to describe the entire process by which the production of crude oil in the United States is regulated. There is naturally much confusion of thought on the subject, for proration is an evolving system of control based upon principles of conservation and equity and embracing a body of practices that are tending to adjust themselves to the needs of the situation but are subjected to varying and divergent influences in the process. As it is now constituted, proration is a planned production measure designed to prevent waste, insure ratable takings, and balance supply and demand. The procedure is administered by State regulatory bodies through use of the police power of the States under authority of State conservation laws; the practice is supported by a considerable degree of voluntary conformance on the part of operators; and the Federal Government has accorded its cooperation by providing advisory quotas, circumscribing imports, checking movements of hot

Jan 1, 1939

Since production curtailment for other than engineering reasons is gradually disappearing, and more and more wells are now producing at capacity and showing declining production rates, it was considered timely to present a brief review of the development of decline-curve analysis during the past three or four decades. Several of the commoner types of decline curves were discussed in detail and the mathematical relationships between production rate, time, cumulative production and decline percentage for each case were studied. The well-known loss-ratio method was found to be an extremely valuable tool for statistical analysis and extrapolation of various types of curves. A tentative classification of decline curves, based on their loss ratios, was suggested. Some new graphical methods were introduced to facilitate estimation of the future life and the future production of producing properties where curves are plotted on semilogarithmic paper. To facilitate graphical extrapolation of hyperbolic-type decline curves, a series of decline charts was proposed, which will make straight-line extrapolation of both rate-time and rate-cumulative curves possible. Introduction During the period of severe production curtailment, which is now behind us, production-decline curves lost most of their usefulness and popularity in prorated areas because the production rates of all wells, except those in the stripper class, were constant or almost constant. While production-decline curves were thus losing in importance for estimating reserves, an increasing reservoir consciousness and a better understanding of reservoir performance developed among petroleum engineers. This fact, together with intelligent interpretation and use of electric logs, core-analysis data, bottom-hole pressure behavior and physical characteristics of reservoir fluids, eliminated a considerable part of the guesswork in previous volumetric methods and put reserve estimates, based on this method, on a sound scientific basis' At the same time, a number of ingenious substitutes were developed for the regular production-decline curve, which made it possible to obtain an independent check on volumetric estimates in appraisal work, even though the production rates were constant. with the now steadily increasing demand for oil to supply the huge requirements of this global war, proration for reasons of than prevention of underground waste is gradually disappearing. More and more wells are, or will be, producing at capacity or at their optimum rates, as determined by sound engineering practice. With this trend, the character of producing wells seems to regain, more or less, its "individuality," and the old and familiar decline curve appears to have had a comeback as a valuable tool in the hands of the petroleum engineer. It may be timely, therefore, to retrace the development of decline-curve analysis in the past by presenting a brief chronological review of bulletins and papers published during the past three or four decades, which have

Jan 1, 1945

By J. E. Pogue, F. G. Coqueron

This paper describes the sources of funds required by the petroleum industry to finance capital expenditures and also presents a discussion of the effect of rising construction costs on these expenditures. The petroleum industry obtains its capital funds from several sources: (I) internal, from retained cash earnings; and (2) external, from borrowings and the sale of securities to the public. The upward trend of capital expenditures of the petroleum industry is caused in the main by the influence of two powerful factors: (I) the physical growth in the demand for oils; and (2) the rising cost of drilling wells and constructing refineries, pipe lines, and other facilities. The segregation of these factors is accomplished by deflating the actual capital expenditures so that they are shown in terms of 1939 costs and then subtracting the adjusted series from the actual figures to yield a set of data representing the expenditures made on account of higher costs. Rising costs affect prices and the portion attributable to this factor had to be generated from the cash earnings of the industry, which called for higher oil prices. Introduction Capital may be defined as "wealth employed in or available for production." All production requires capital. Expanding industries require more capital than static ones, and technological industries employ more capital than. those in which little equipment is needed. The petroleum industry is both rapidly growing and highly technological, and, being a large industry, its capital requirements are prodigious, amounting to about one-seventh of the total of all American business, excluding agriculture.* Capital formation may be defined as the method by which the wealth or capital needed in the productive processes is created. There are various ways in which capital funds may be obtained but there is only one way in which capital can be created—out of production in excess of consumption, that is, savings. The physical realities are simple, but the monetary concepts are complicated because the mechanism of credit can draw upon future savings. Source of Capital Funds An industry, such as the petroleum industry, can obtain its capital funds from

Jan 1, 1949

By H. J. Wasson

Published literature regarding the nation's oil reserve has been largely concerned with the estimated quantities in sight in known producing fields. This proved reserve has never been large in relation to demand. It has been the practice to consider the total future reserve (beyond that in sight within known fields) in the light of the broad potentialities of vast areas of partially explored sedimentary rocks, which are regarded as possible oil territory. Until recently, but little attention has been given to the rate at which the unexplored potentialities may be. converted into the proved reserve classification. To a certain extent, therefore, our contemporary viewpoint on the subject of national oil reserves is characterized by a pronounced contradiction. On the one hand, we measure known reserves as sufficient for only a few years of consumption—i.e., relative scarcity; on the other hand, we are confident that millions of unexplored acres will yield many new oil fields and that countless deeper productive formations underlie many of our known productive fields—i.e., infinite abundance. Of greater significance than the quantitative measure of either of these reserve classifications is the rate at which reserve replenishment must be accomplished in order to maintain an adequate time supply of proved oil reserves. The accumulation of geological data covering broad areas supports the belief that the remaining undiscovered oil reserve is exceedingly large. The distribution of oil in sedimentary formations of practically all ages, from Cambrian to Recent, is suggestive of almost unlimited possibilities; and the relatively small proportion of these possible areas that has been intensively explored in this country is a further index of the probable magnitude of the undiscovered future reserve. The implication that may reasonably be drawn from these observations is that oil, though distributed with less regularity and concentration than its related hydrocarbon, coal, nevertheless is a relatively abundant natural commodity of which the exhaustion appears remote. Final exhaustion of our oil reserve, if not infinitely remote, is a future contin-

Jan 1, 1937

By Sidney A. Swensrud

This paper reviews the subject of gasoline margins, discusses some of the more current marketing problems, and gives some consideration to the main urges to marketing expansion, or overexpansion, in the oil industry. Margins In an earlier paper1, some comparisons were shown for the years 1929, 1930 and 1931, of the margin between the refinery cost of gasoline in Oklahoma, the market price in Oklahoma, and the average retail price in 50 representative cities of the United States. These figures indicated a small margin for the refiner in 1929 between his gasoline cost and the wholesale price, which, however, had turned into a loss by 1931. The margin between either refinery costs or wholesale prices and the retail price in the 50 cities showed a continuous decline during the three years. We have now worked out these figures on a similar basis for a longer period—from 1928 through 1936. The figures for refinery gasoline cost are slightly different from those in the earlier study, owing to the use of

Jan 1, 1937

By Norman D. Fitzgerald

The growth of domestic requirements for motor fuel has been phenomenal, rising year after year in a fashion almost unique among commodities, resisting depressions and forging rapidly ahead in times of prosperity. Consumption advanced from 226 millions of barrels in 1925 to 522 millions of barrels in 1938; or 130 per cent. The economic influences generating and sustaining this demand are of vital concern to the petroleum industry. The general factors affecting utilization of motor fuel are well known but it is the purpose of this paper to employ the recently developed technique of economic dynamics to describe them mathematically. Such problems in economic analysis are complicated by the freedom of all the variables to fluctuate, their mutual interdependence, changing incidence upon one another, and the nonquantitative character of some of them. Economic quantities and relationships, unlike those of the physical world, are continuously changing and this dynamic characteristic is both a distinguishing and confusing feature in economic research. The complexities of the problems require application of the analytical devices of mathematical statistics to uncover the probable relationships between factors. The procedure employed is to formulate a logical relationship linking the dependent to the independent variables, and then simultaneously, rather than sequentially, determine their separate effects by multiple correlation. This transformation of common knowledge to quantitative terms makes it possible to measure the probable effects of changing conditions upon requirements, assisting in the sound interpretation of economic policies. The utility of the results of such dynamic analysis is in sharp contrast to the sterility of the trends and other simple empiricisms of descriptive statistics. It is not intended in this study to throw light on the reasons why any motor fuel at all is consumed; but to discover relationships explaining why more was consumed at one time than at another. Specifically the problem is confined to the measurement of the influences of statistically

Jan 1, 1940

By Norman D. Fitzgerald

The growth of domestic requirements for motor fuel has been phenomenal, rising year after year in a fashion almost unique among commodities, resisting depressions and forging rapidly ahead in times of prosperity. Consumption advanced from 226 millions of barrels in 1925 to 522 millions of barrels in 1938; or 130 per cent. The economic influences generating and sustaining this demand are of vital concern to the petroleum industry. The general factors affecting utilization of motor fuel are well known but it is the purpose of this paper to employ the recently developed technique of economic dynamics to describe them mathematically. Such problems in economic analysis are complicated by the freedom of all the variables to fluctuate, their mutual interdependence, changing incidence upon one another, and the nonquantitative character of some of them. Economic quantities and relationships, unlike those of the physical world, are continuously changing and this dynamic characteristic is both a distinguishing and confusing feature in economic research. The complexities of the problems require application of the analytical devices of mathematical statistics to uncover the probable relationships between factors. The procedure employed is to formulate a logical relationship linking the dependent to the independent variables, and then simultaneously, rather than sequentially, determine their separate effects by multiple correlation. This transformation of common knowledge to quantitative terms makes it possible to measure the probable effects of changing conditions upon requirements, assisting in the sound interpretation of economic policies. The utility of the results of such dynamic analysis is in sharp contrast to the sterility of the trends and other simple empiricisms of descriptive statistics. It is not intended in this study to throw light on the reasons why any motor fuel at all is consumed; but to discover relationships explaining why more was consumed at one time than at another. Specifically the problem is confined to the measurement of the influences of statistically

Jan 1, 1940

By Norman D. Fitz Gerald

The lack of a continuous operating balance in petroleum refining, which is analyzed in this paper, is by no means a feature solely of this division of the oil industry. Serious disequilibria of a capital as well as an operating nature exist both in the producing and marketing departments, while problems in the former and to some degree the latter are complicated by political involvements. Attention has previously been directed to the unstabilizing influence of present proration formulas in stimulating unnecessary drilling.' While equilibrium in petroleum refining operations has been fairly well maintained in the past decade, examination of departures may prove fruitful. Economic analysis is the application of time and motion study to the functioning of management, rather than labor. Properly applied it may reveal changes in policies that would increase the utility of the properties and facilities of the industry for stockholders, employees and the public, while contributing a stabilizing influence to the general economy. The study of economic equilibrium is essentially one of measurement and interpretation, requiring adequate data and the development of a technique of analysis that employs statistical and mathematical methods as a supplement to the broad descriptive phase of economics. Economic equilibrium in petroleum refining is a dual concept. It embraces both the over-all balance between total storage and total demand for major products and the internal balance between the demands and inventories of the various products. The latter is the more complex of the two for it is concerned with proportionating the supplies of the several products stemming from the joint source to the demands for the individual products which are subject to wide variations. All the products are essentially nondurable goods, and they are used both by producers and consumers but in varying proportions. Motor fuel is very largely a consumer's good, while residual fuel oil is almost entirely a producer's good, the other products falling between these extremes. The peculiar-

Jan 1, 1939

By Norman D. Fitz Gerald

The lack of a continuous operating balance in petroleum refining, which is analyzed in this paper, is by no means a feature solely of this division of the oil industry. Serious disequilibria of a capital as well as an operating nature exist both in the producing and marketing departments, while problems in the former and to some degree the latter are complicated by political involvements. Attention has previously been directed to the unstabilizing influence of present proration formulas in stimulating unnecessary drilling.' While equilibrium in petroleum refining operations has been fairly well maintained in the past decade, examination of departures may prove fruitful. Economic analysis is the application of time and motion study to the functioning of management, rather than labor. Properly applied it may reveal changes in policies that would increase the utility of the properties and facilities of the industry for stockholders, employees and the public, while contributing a stabilizing influence to the general economy. The study of economic equilibrium is essentially one of measurement and interpretation, requiring adequate data and the development of a technique of analysis that employs statistical and mathematical methods as a supplement to the broad descriptive phase of economics. Economic equilibrium in petroleum refining is a dual concept. It embraces both the over-all balance between total storage and total demand for major products and the internal balance between the demands and inventories of the various products. The latter is the more complex of the two for it is concerned with proportionating the supplies of the several products stemming from the joint source to the demands for the individual products which are subject to wide variations. All the products are essentially nondurable goods, and they are used both by producers and consumers but in varying proportions. Motor fuel is very largely a consumer's good, while residual fuel oil is almost entirely a producer's good, the other products falling between these extremes. The peculiar-

Jan 1, 1939

By Edgar G. Hill

Much has been written and said recently about the methods used and materials and equipment employed in building the long tubes that criss-cross a great part of the United States, like the pattern of a spider's web. This paper will discuss the fundamentals of design of these lines from the economic as well as the engineering viewpoint, pointing out the effect of the volumes transported, and the load factor, on the unit costs of transportation, as well as the effects on costs of the character 01 the fluids the lines are called upon to handle. Generally speaking, crude-oil pipe lines carry oil from the producing fields to the refineries. Sometimes part of the journey is by pipe line to a coastal point and tank ships are employed for the rest of the trip. The main lines of directional flow of crude oil through pipe lines in the United States are shown on Fig. I, but this, of course, does not always show individual pipe lines. Basic Formula for Flow OF Crude Oil The laws governing the flow of crude oil through pipes are well known. The basic

Jan 1, 1942

By Edgar G. Hill

Much has been written and said recently about the methods used and materials and equipment employed in building the long tubes that criss-cross a great part of the United States, like the pattern of a spider's web. This paper will discuss the fundamentals of design of these lines from the economic as well as the engineering viewpoint, pointing out the effect of the volumes transported, and the load factor, on the unit costs of transportation, as well as the effects on costs of the character 01 the fluids the lines are called upon to handle. Generally speaking, crude-oil pipe lines carry oil from the producing fields to the refineries. Sometimes part of the journey is by pipe line to a coastal point and tank ships are employed for the rest of the trip. The main lines of directional flow of crude oil through pipe lines in the United States are shown on Fig. I, but this, of course, does not always show individual pipe lines. Basic Formula for Flow OF Crude Oil The laws governing the flow of crude oil through pipes are well known. The basic

Jan 1, 1942

By C. L. Burrill

The forecasts presented in this paper constitute an attempt by the writer to predict the pattern of the consumption of petroleum products in the United States during the period of transition from war to peace. Although, in preparing the estimates, secular trends were not overlooked, greater emphasis was placed upon considerations of a cyclical character, or upon influences which might be peculiar to parts of the period. The estimates do not extend beyond the year 1950 because by then conditions in the industry should have returned to normal. The consumption of petroleum products is affected, of course, by changes in the condition of business in general. Before estimates of petroleum consumption could be prepared, therefore, it was necessary to predict the pattern of general business during the period under review, particularly the economic series that in the past have shown the closest relationships with petroleum consumption. It is the writer's view that business activity in this country (as measured by industrial production) will be higher on the average during the period between the end of the war and the year 1950 than it ever was before during a peacetime period of the same duration. When the war is over, consumers will have saved amounts of money that will be very large as compared with any previous accumulations. There is little question, therefore, as to the financial ability of consumers to purchase goods. The production of many durable consumers' goods, such as automobiles, refrigerators and radios, has been completely stopped since early in the war; also, many semidurable and nondurable consumers' goods have not been available in the quantities or the qualities desired. There is considerable needi therefore, for consumers to purchase goods after the war. The important question is whether consumers will purchase goods in "1arge enough quantities to keep our economy running at a high level. The writer answers this question in the affirmative. The mere existence of very large consumer savings lends considerable support to this view because, with such backlogs of " security," consumers can afford to spend more of their current earnings than they otherwise could. Also, several polls have been taken, which indicate that consumers expect to buy large quantities of a variety of goods. Some of the savings, therefore, probably will go into current consumption. Even though this percentage is relatively small, so that the bulk of the funds accumulated by consumers during the war continues to remain as savings during the period under review, spending should be great enough to start the production cycle and keep it

Jan 1, 1945

By G. A. Beiswenger

The application of the law of supply and demand to the sale of crude oil is generally conceded, but the motives underlying the buyer's (refiner's) demands are not always obvious to the seller (producer). In some cases this obscurity has led to the conclusion that the refiner may be unnecessarily particular when he selects one crude and rejects another. This preference, however, is very largely the reflection of the refiner's product demands and the quality of the stocks obtainable from the selected crude. The purpose of this paper is to point out critical characteristies of the major classes of refined products and to show how crudes vary in their suitability for such products. With relatively few exceptions, available processing methods and addition agents make it theoretically possible to produce any type of refined product from any crude source, although it may not be economically sound to do so. The widespread application of thermal cracking for converting higher boiling stocks into gasoline is well known. More recently cracking and refining in the presence of catalysts9 have been developed, as well as various processes for polymerizing lighter hydrocarbons into gasolines having desirable characteristics.6 For several years, selective solvents have been applied commercially to refining inferior quality kerosene, Diesel fuel and lubricating oil distillates.3 Improved methods for refining lubricating oils from crude residual4 formerly suitable only for fuel, are now in use and a number of special solvent processes are available for dewaxing lubricating oils to low pour point.5 These improved refining methods have been developed not only to meet the demand for improved product quality but also to enable the refiner to obtain quality products from crude sources that would not yield such products by the older refining methods. In many cases, the utilization of these modern refining tools necessitates an appreciable expenditure for equipment as well as added manufacturing costs, and their application therefore must be justified economically. Despite the availability of such tools, the added processing costs involved and yields obtainable may render their application entirely impractical. To illustrate this point, inspections of typical cuts from various crudes

Jan 1, 1940

By G. A. Beiswenger

The application of the law of supply and demand to the sale of crude oil is generally conceded, but the motives underlying the buyer's (refiner's) demands are not always obvious to the seller (producer). In some cases this obscurity has led to the conclusion that the refiner may be unnecessarily particular when he selects one crude and rejects another. This preference, however, is very largely the reflection of the refiner's product demands and the quality of the stocks obtainable from the selected crude. The purpose of this paper is to point out critical characteristies of the major classes of refined products and to show how crudes vary in their suitability for such products. With relatively few exceptions, available processing methods and addition agents make it theoretically possible to produce any type of refined product from any crude source, although it may not be economically sound to do so. The widespread application of thermal cracking for converting higher boiling stocks into gasoline is well known. More recently cracking and refining in the presence of catalysts9 have been developed, as well as various processes for polymerizing lighter hydrocarbons into gasolines having desirable characteristics.6 For several years, selective solvents have been applied commercially to refining inferior quality kerosene, Diesel fuel and lubricating oil distillates.3 Improved methods for refining lubricating oils from crude residual4 formerly suitable only for fuel, are now in use and a number of special solvent processes are available for dewaxing lubricating oils to low pour point.5 These improved refining methods have been developed not only to meet the demand for improved product quality but also to enable the refiner to obtain quality products from crude sources that would not yield such products by the older refining methods. In many cases, the utilization of these modern refining tools necessitates an appreciable expenditure for equipment as well as added manufacturing costs, and their application therefore must be justified economically. Despite the availability of such tools, the added processing costs involved and yields obtainable may render their application entirely impractical. To illustrate this point, inspections of typical cuts from various crudes

Jan 1, 1940

By Charles J. Deegan

The purpose of this paper is to point out some features of the position of fuel oil and it's relationship to the economic balance and price structure of the petroleum industry. The term "fuel oil" as used in this paper includes crude used as fuel as well as refined gas oil and fuel oil. The period covered, from 1922 to date, may be characterized as the new normal era after the post-war inflation and deflation. In order to establish a proper perspective, the figures on consumption of the principal products of petroleum are shown in Table 1. This table shows that fuel oil and gasoline made up the bulk of the total demand in 1928 just as they did in 1922. There has been so much comment about the enormous increase in gasoline consumption that it may come as a surprise to some people to find that fuel oil is still at the head of the consumption list, in point of volume at least, and seems likely to hold that place for at least another year. Having established the fact that gasoline and fuel oil are by far the most important products, the remainder of this paper will deal almost entirely with these two items.

Jan 1, 1929

By A. H. Hand

When considering the question of future demand for crude petroleum in California, one must first decide whether it is to be approached in the light of the definition of "demand" when used in economics; i.e., "The quantity of any commodity required or sought in the market," or in the light of markets developed to dispose of total supply. Therefore, is the California demand of future years to be predicated on a continuation of supplying markets developed following the surplus production commencing in 1922, or predicated on supplying what would be termed economic markets ? If the latter, what are economic markets ? Obviously, the Pacific Coast States and Canada, Alaska, Hawaii and probably the Pacific side of Central and South America, can be considered as normal markets for California petroleum products. While there have been small quantities of gasoline shipped into the PacSc Coast from East Texas, transportation costs, plus import taxes in the case of foreign oil, are a sufficient barrier to justify considering that these markets will be retained. But how about our participation in Atlantic and Pacific foreign and intercoastal markets? During the five years preceding 1931 California shipped substantial quantities of gasoline to the United Kingdom and to France, Germany and Italy. During recent years our business in European markets has been restricted to occasional shipments of gasoline and Kettleman crude. This loss of business is occasioned by the development of production in the Mid-Continent, principally East Texas, and in Iraq, Rumania, Venezuela and other closer producing areas, which makes it impossible at the prevailing crude-oil prices for California to be competitive in supplying any substantial portion of these markets. It is therefore apparent that under a stabilized price structure that will return the California producer a reasonable price for his oil, future Atlantic foreign -business will be restricted to occasional spot cargo sales. As to Pacific foreign shipments which, in addition to Central and South America, consist principally of shipments to Japan, China, Australia and New Zealand: A considerable portion of the business we had with Australia and New Zealand until four or five years ago is now being

Jan 1, 1937

By F. E. Minshall

FoR more than 30 years California has been one of the three leading oil-producing states. Present daily production of crude oil under curtailment, approximately 580,000 bbl., comes from three general areas: Los Angeles Basin, San Joaquin Valley, and the coastal region of Ventura and Santa Barbara Counties. This state produces approximately two-thirds of its oil from eight large fields, and obtains a daily average production of 48 bbl. of oil per producing well, whereas the average for the United States is but 8.15 barrels. During the closing stages of the first half of 1936, discovery of the Section Ten oil field was made, and credit goes solely to geophysical work. It is the first direct important discovery of oil in California that may be credited to geophysics. This discovery may furnish the cue to the means of discovering several fields in California, particularly in the San Joaquin Valley. It is a question, however, whether returns from geophysical work will play as important a part in the future supply of oil in California as have our former types of prospecting. Explobation Methods of prospecting have progressed in the oil industry through invention or improvement in scientific means of locating and defining structure and because of market improvements in drilling equipment. Present methods of prospecting include: 1. A detailed study of geology in an attempt to locate structural and stratigraphic conditions that would be favorable to the accumulation of oil. 2. Geophysical methods involving the use of the seismograph, torsion balance, magnetometer and electrical methods. (There is still much to be learned in California in the application of geophysical methods.) 3. Use of micropaleontology as an aid in correlation,. The principal improvements in drilling equipment are: 1. The Schlumberger dipmeter, which determines the direction of formation dip in an uncased hole.

Jan 1, 1937

By H. J. Struth

Gasoline is undoubtedly of major importance not only to the petroleum refiner but to the producer. To study the economic aspects of gasoline is, in a measure, a constructive effort to solve the problem of overproduction not only for the refiner but for the entire petroleum industry. After all, the prime object of producing crude petroleum is to supply motor fuel and lubricants to nearly 25,000,000 American motor vehicles, not to mention the increasing demand for these products abroad. Since gasoline furnishes the chief source of revenue to the refiner, it follows that this important product should veritably become recognized by all branches of the petroleum industry as an almost infallible index of day to day requirements of the producer and the refiner. A careful study of gasoline statistics over the past decade or more reveals that there is a definite correlation between world-wide gasoline requirements and the demand for crude petroleum, as well as all other petroleum products. This leads the writer to the conclusion that gasoline is literally the economic yardstick of the entire petroleum industry. Control of Operations That the refiner has begun to recognize the urgent need for controlling his operations is evidenced by the results of the past three years. Unfortunately, it is a difficult problem to convince the refiner that he cannot run crude in excess of the demand for gasoline, without incurring a consequent decline in the market value of this and all other products of distillation. Undoubtedly, he still has much to learn in this respect. Few commercial products have enjoyed such phenomenal growth in demand as has gasoline, and, at the same time, few products have failed, as has gasoline, to reap financial benefit from the popular demand for a national necessity. Perhaps this unprecedented demand was responsible for the overextension of retining facilities, which resulted in the excesses of recent times; at any rate, as the demand for gasoline grew by leaps and bounds, so the refining industry continued to increase its capacity for

Jan 1, 1929

By Campbell Osborn

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

Jan 1, 1929

By Albert J. McIntosh

With petroleum consumption declining temporarily after V-J day, the oil industry is urged to use this period as a kind of stopgap to rebuild its war-depleted inventories and help cushion the effect of this decline on producers and refiners. Higher inventories should be reestablished, since recent experiences have indicated that, by and large, the present inventories of crude oil are too low even with the tremendous current production available. The following analysis indicates that inventory levels could be built up to about 490,000,000 bbl. by the end of 1947, an increase of about 40,000,000 bbl. over the reported stock estimated for the war's end. If at the end of the war the military have some 20,000,000 bbl. on hand, this inventory will either be resold to the industry or certain demands that have been assumed to be met by industry will be supplied out of these military stocks, which would leave about 20,000,000 bbl. (net) to be built up from current production. For stock rebuilding the industry could use 10,000,000 bbl. of crude plus 10,00,000 bbl. of products, totaling 20,000,000 bbl. If this were spread over a year, this would mean 55,000 bbl. a day. By analyzing the average inventories held in a year with the total quantity of goods handled during the year, the following study and tables indicate how far the inventories should increase in the immediate postwar period. Introduction For the period immediately following V-J day, most of the petroleum economists have forecast a considerable decline in the total consumption of petroleum and its products in the United States. This will be caused by the elimination of most of the military demands and the inability of civilians to immediately replace automobiles, burners, etc., and thus increase their requirements to make up for the military decline. When the automobile industry has been back on full production for two or three years, civilians will be able to consume much larger quantities of gasoline. Delay in the manufacture of new oil burners and the time it takes to construct new homes, adds up to the same story for distillate fuels. In reviewing this outlook, the question has arisen whether the petroleum industry should not use this period of lower consumption as a kind of stopgap to rebuild its war-depleted inveritories and help cushion the effect on producers and refiners of this sudden drop in requirements. Some persons have indicated that hundreds of thousands of barrels a day could be used for this purpose extending over a year or more. Refineries will be in existence, which could run over 5,000,000 bbl. of crude oil a day and crude-oil production might be running 600,000 to 700,000 bbl. a day above the demands now forecast for the period after V-J day. Reasons for. Making Inventories In order to plan intelligently for this period, the petroleum industry should determine the needs for the establishment of higher inventories for crude and petroleum products than have been carried during the war. The reasons for trying to make such a determination are as follows:

Jan 1, 1945