Oil Production

President Walter C. Teagle of the Standard Oil Co. of New Jersey is an unusually able business executive and a deep student of the petroleum industry, as well. In a recent speech, he reiterated his belief as to the increasing importance of fuel oil to the whole petroleum business.

When petroleum was first discovered, its principal product was kerosene, which competed so successfully with the whale oil previously used in lamps as to destroy the whaling industry. With the advent of electric light, the oil business was in turn threatened. But the rise of the automobile created an enormous demand for gasoline.

Oil production depends directly on the price at which crude oil can be sold; this in turn has depended on the gasoline demand. Now, according to Mr. Teagle, the price of crude oil is coming to be measured by the demand for fuel oil instead of gasoline. As far as gasoline requirements are concerned, crude oil has been overproduced, and for the following reasons:

1) Improvements in efficient extraction of gasoline were not correctly fore seen.

2) These improvements now make it possible to obtain twice as much gasoline from a barrel of crude oil as formerly.

3) Stocks of crude oil were acquired at high prices, and prices were later bid up too high.

4) The after-war oil shortage led to large new investments in oil production and consequently higher output.

5) Flush production in California recently showed that crude oil prices tend to seek the same level everywhere, except only for the item of transportation.