Papers - Petroleum Economies - Economic Trend of the Petroleum Situation (With Discussion)

New economic forces are at work in the petroleum industry. In order to visualize these forces and to see clearly their bearing upon the producer, refiner, and marketer, it is necessary, first, to go back and gain a perspective of the economic evolution of the business. Early Trend to Integration For several decades prior to 1911, the outstanding feature of the petroleum industry was a trend toward integration, culminating in a huge combine, the Standard Oil Co. An important aspect of this integrative trend, however, was its concentration upon a combination and control of refining and marketing, leaving crude oil production, for the most part, to the exigencies of small-unit competition. It is a noteworthy coincidence that during this era the law of oil and gas was formulated and applied, whereby these substances had to be reduced to possession to establish ownership; and the forces of competition in crude oil production were thereby intensified. It was to the interest of an industry, safeguarded in its control of manufacturing and markets, to have supply stimulated by legal convention as well as by individual initiative in order that the growing demand could be met without interruption. And so overproduction of crude oil during this era was no handicap, but rather an aid, to the progress of the industry. Disintegration But the idea of superintegration, despite its efficiencies, became repugnant to the temper of the times and so the Standard Oil Co. was dissolved by Court decree—disintegrated into over 30 parts. And thus, in 1911, was ushered in the second era of the petroleum industry, a period of intense competition. This era coincided with the development of automotive transportation, and a tremendous growth resulted in the effort to keep pace with the mounting demand for gasoline. An intense individualism and unbridled competition were appropriate to this period of entry