Integration and Competition in the Petroleum Industry

By Melvin G. De Chazeau; Alfred E. Kahn | Go to book overview

CHAPTER 7
Regulation of Production by the States

AGAINST the rising demands and the evolving national consciousness of dependence on oil associated with World War I and its immediate aftermath, domestic production seemed to falter after 1915. Crude prices in the Midcontinent area rose from 40 cents a barrel in the spring of 1915 to $3.50 in March, 1920; imports increased, especially from Mexico; and domestic crude stocks were drawn down.1 This experience inspired fears that the country might be running out of oil.2 The subsequent reversal of fortune when new strikes flooded oil markets did not quell public concern: the wastes of temporary flush production boded ill in the long run for an economy of soaring demands. Both experiences afforded ample evidence of the public interest in some sort of government regulation.


CONFLICTING INTERESTS IN THE EVOLUTION OF STATE CONTROLS

Private interests too were intimately involved in these developments. Expanding company investments at other levels of the industry were threatened by discontinuity of supplies, and some state governments soon became aware of the higher royalties, higher taxes, and higher wages that could be generated by higher prices and more stable output.3 The violent instability and wasteful, discriminatory behavior of uncontrolled crude markets became increasingly intolera-

____________________
1
See Watkins, pp. 40-41. Also Petroleum Facts and Figures, 9th ed., pp. 3 and 365-366.
2
Thus J. E. Pogue spoke of "approaching exhaustion" of domestic supplies in 1918, and he was still apprehensive in 1921. See C. G. Gilbert and J. E. Pogue , Petroleum: A Resource Interpretation ( Washington, D.C., Smithsonian Institution, Bulletin 102, 1918), Pt. VI, p. 1 (quoted by Kemnitzer, Rebirth of Monopoly, p. 57); and Pogue, Economics of Petroleum ( New York, Wiley, 1921), pp. 351-352.
3
An excellent analysis of forces converging to bring about public control was written during the period by J. Howard Marshall and Norman L. Meyers, "Legal Planning of Petroleum Production: Two Years of Proration," Yale Law Journal, 42 ( 1933), 702 ff., esp. n. 119.

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