The Washington times., 1930-11-08
oil SITUATION.
CLOSE To
CHANGE
Crude Oil Price SIashiiu
Spreads Throughout Coun-
try; curtaiIment Suggested
BY LEWIS HANEY

try; curtaiIment Suggested
BY LEWIS HANEY
Director New York University
Bureau of Business Research
and Former Economist of
Federal Trade Commission
The oil situation is getting
about as bad as 1t can be. But
as usual that probably means
that forces making for ultimate
improvement will now become
effective. It takes strong medi.
cine to force the necessary cur
tailment Of overproduction and
the liquidation of excessive inven.
tories In such an industry.
The slashing Of crude oil prices
has spread from North Texas
throughout the Mid Continent
fields and into Rocky Mountain
and Eastern territory. The cut
has been the sharpest In recent
years. With Mid Continent crude
Of 25-degree gravity and under
at So cents q barrel, the price is
the lowest since pre-war times.
Gasoline markets, too, are gen.
orally weak. In Oklahoma terri.
tory the refiners get only 41a-434
cents for u. s. motor fuel, which
is certainly below cost Of produc.
ton even at low crude oil prices,
Earnings Unfavorable
Oil refiners' earnings, which
made an unfavorable showing in
the third quarter, are bound to be
even poorer in the fourth quarter
and the reduction in inventory
values Of crude and refined prod
ucts will weaken the balance
sheets.
The estimated margins between
the price Of a barrel Of crude oil
and the price Of the refined
products obtained therefrom, is
down to the low level Of 1927. It
is so low that it is bound to force
further curtailment Of refinery
operations.
But in the past, such conditions
have always worked q temporary
cure, and have been followed by
recovery in the prices Of oil
stocks. While it seems that the
recovery this time viii be slow, be-
cause Of poor business conditions
and the unusually large excess of
oil supplies, there is no reason to
doubt that the usual improvement
will ultimately be seen.
The great trouble in the oil in
dustry Gas in many others has
been the artificial effort to hold
prices up. This has made it i'm.
possible to keep domestic produc-
ton and imports down. Also It
has limited consumption and ex-
ports Of oil products. Now that
prices are being cut, the good old
law, Of supply and demand viii get
In its work.
To Check Output
Drilling Of new wells will be
checked. So will imports Of crude
and, to some extent, domestic
production. At the same time
consumption of fuel oils and
gasoline will be encouraged. Our
refinerS will be able to compete
more effectively in the world
markets, for gasoline and kero-
Sene.
But, while better times for the
oil industry will come in due
course, it is probably going to be
a long pull. We must remember
that the shutin potential pro
duction Of crude is fully as large
as the actual current production,
and the foreign production has
been gaining on that of the U. S.
Stocks Of crude are still very
large. Gasoline stocks are record
breaking for the season and are
unusually heavy in comparison
with shipments.
AS result, would not hold
any "oilS" except a few of the
very largest, and strongest com.
panieS. Even these will probably
be slow in recovering, so that it
would be well to consider shifting
out Of them into companies which
are more likely to lead in the
next bull market.