OIL: Growing Glut

The U.S. oil industry was caught last week in a pinch that had the oilmen howling for relief. Instead of the usual 4%-5% annual increase in domestic oil demand, consumption has edged up only 1%, pushing surplus stocks of petroleum products to 723.9 million bbl. by the end of September, nearly 43 million bbl. more than during the same period last year. Oilmen everywhere cut back exploration for new wells, and prices slumped sharply. With more oil than it can sell, Ohio Oil Co. shaved its bids for new supplies of Wyoming heavy crude by 8¢ per bbl. and Indiana Standard cut its price to Arkansas producers by 10¢ per bbl. At consumer levels a rash of price wars from New Orleans to New Jersey cut service station prices as low as 14.9¢ per gal. before taxes.

To some oilmen, mainly the big importers, the growing glut is a result of domestic overproduction during the Suez crisis. They argue for drastic cutbacks in U.S. production. But in many oil states, which depend on oil for more than 10% of their tax revenues, output has already hit rock bottom. In Texas, which supplies 42% of all U.S. oil, October output was limited to twelve days, lowest allowable since 1939. Louisiana wells are producing at history’s lowest rate, while Oklahoma is so pressed that it went to court last week with a $500 million suit against Gulf Oil Corp., charging that the company cut its purchases of Oklahoma crude to 80% of allowables without asking for necessary “exemptions” from its buying agreements.

To solve the problem, the U.S. Government stepped in last week with more of the same distasteful medicine it has been pressuring the industry to swallow for months. Instead of cutting domestic production, it will insist that major oil companies chop back their imports of cheaper foreign oil under a “voluntary” 10% reduction program (TIME, Sept. 30). Having already rejected appeals by three companies (Tidewater, Indiana Standard Oil, Ohio Standard) for sizable boosts in their import quotas. Navy Captain Matthew V. Carson Jr., administrator of the program, also turned down Eastern States Petroleum Co. and Sinclair Oil Co., even though Sinclair argues that it will mean costly cutbacks in its ambitious plans to sell Venezuelan crude oil.

So far only Sinclair and Indiana Standard have publicly conceded that the ruling leaves the major companies little choice but to go along. Yet the importers know that if they refuse the voluntary cutbacks, they face mandatory controls by the Government, may even come up against legislation in Congress to reduce imports. Though only ten of the 22 curbed importers say that they can meet their quotas by January, their imports are slowly inching down, will average 849,300 bbl. daily by December, not too far from the Government’s goal of 755,700 bbl. daily for the year ending next June 30.