Crude Cuts

The dank, smelly meadows of Linden, N.J. are pimpled with an enormous collection of oil tanks--30 belonging to Sinclair, 175 to Cities Service, 800 to Standard Oil of New Jersey--huddled closely around one of the largest U.S. refineries (Standard's). One day last week a Cities Service tank of ethyl gasoline blew up with force enough to toss its top 150 yards. A flaming geyser of 1,680,000 gallons of gasoline in a few minutes was splattering a dozen other tanks. By midnight 18 tanks had collapsed into a scarlet pool of blazing oil. Watchers got scorched cheeks a mile away. Men who fought the blaze with foamite wondered whether the whole tank metropolis would go. But the wind was merciful. By next noon the last flicker was out. Total damage: $500,000.

To fully insured Cities Service, the fire was chiefly an inconvenience. To the petroleum industry at large it was something of a blessing--for at least 119,047 barrels of gas and oil were consumed, thus reducing the tremendous inventories which overhung the market.

For a while oil had seemed to be one industry that had avoided the "inventory depression" of the past year. With production in most of the mid-continent field strictly prorated, crude prices have been steady all year and crude oil stocks have been held down so much that on October 1 they were at a 15-year low of 280,852,000 bbls. But refiners, who did not see Depression II coming, have been feeling the pinch of reduced industrial demand and curtailed public consumption; their stocks of refined products now stand at phenomenal highs--fuel oil at 151,759,000 bbls. (116,164,000 year ago), gasoline at 68,602,000 bbls. (65,466,000 year ago).

Last week this basic unbalance finally brought the event the industry has been hoping against--widespread cuts in the price of crude oil. Initiated by small independents in the non-prorated States of Louisiana and Arkansas, the cuts were soon adopted by everyone, dropping the price from $1.22 to about $1.02, the first general cut since NRA. Thus brought into the open was a paradox which may knock the complex proration system galley-west: an efficient method of controlling production has been worked out, but since the Federal antitrust suit against the oil industry at Madison, Wis. last year, there has been no way of stabilizing the price or the quantity of refined petroleum:

Stabilization of oil was first attempted under NRA. When that went under, the job of issuing production quotas was assumed by prorate boards in Texas, Oklahoma, Kansas, Colorado, Illinois, New Mexico, cooperating through an Interstate Oil Compact Commission specially authorized by Congress. This six-State body has no regulatory or price-fixing powers, can act only as a clearinghouse between the various State regulatory boards. That it has been successful is attested both by the present small crude oil inventories and by the Commission's voting three weeks ago to ask Congress to extend it another two years.

The prorated States' chief obstacle has been the fact that three big oil States--California, Louisiana and Arkansas--refused to join the compact, have scarcely limited production at all. When last week's crude price cuts originated in these non-prorated areas, there was immediate resentment in prorated areas. In Texas, biggest producer of all, which has been on a five-day production week for months, there was a gush of demand for a return to a seven-day schedule. Colonel Ernest O. Thompson, chairman of the Railroad Commission which prorates Texas oil production, declared that Texas' 400,000 bbls. daily curtailment was being offset by uncontrolled production elsewhere.* Said he: "We must not lose our established and rightful markets. Once lost they may never be regained."

Fact remained, however, that the crude price cuts were not due to overproduction in non-prorated States but to the top-heavy refined inventories. Before the Madison trial small, hard-pressed independents like those who started last week's price cuts would have been aided by the big refineries buying some of their inventory. Now all such cooperation is taboo. With a second antitrust suit scheduled to start in Madison next May, the scared oil industry must avoid any such method of price stabilization.

* The Treasury Department last week started an inquiry into complaints that Mexico has dumped 600,000 bbls. of crude at 70-c- a bbl. in Houston in the past month.

This file is automatically generated by a robot program, so reader's discretion is required.