Papers - - Petroleum Economics - An Aspect of the Arbitrary Restraint of Production (With Discussion)

Restriction programs in important raw-materials industries in foreign countries have been abandoned after lengthy trials. Presumably, failure has been a logical consequence of the attainment of objectives of the restrictive schemes in the early periods of their administration in defiance of economic law. In general, the chief objective has been the elevation of prices of the products of these industries. More conservative plans have sought the maintenance of a price structure that was in jeopardy at the time restriction was initiated. The course of the administrat'ion of restrictive measures can be traced by the result's of restriction, viz.: the creation or maintenance of highly profitable prices; the over-expansion of productive facilities; the accumulation of inventory; and finally, by the collapse of the price structure, which invariably has led to abandonment of the restrictive scheme. The theory and practice of restriction as applied to industries that have tried it are too well known to need detailing here. Restraint of Production of Crude Oil Regardless of the record of the catastrophic outcomes of restrictive measures in other industries, our industry has not been deterred from attempting restriction of crude-oil production. The assumed bases for success of our restrictive plan are clear. They follow from the fact that the physical characteristics of the petroleum industry differ from those of other industries that have tried restriction. Its raw material is a highly essential substance, a natural, exhaustible resource. The extent of its reserves is unknown, a fact that arouses the cooperative spirit of conservationists. At no time before the inauguration of restriction had its developed reserves been sufficient to supply more than the requirements for a few months without the help of new drillings. To a considerable extent its discovery involves the element of chance. Its economic production seems to require an unnatural relationship; namely, cooperation among competitors, because it is a fugitive resource, capable of moving from under one owner's property to underlie another's. Thus its recovery presents intricate legal questions concerning property rights.