The Economics of the International Petroleum Industry

The petroleum industry's operations not only affect the lives of all of us here, but also play a major role in shaping the economy and influencing the political life of every nation in the world. We find ourselves today face-to-face with enormous responsibilities at home and abroad. In this paper the writers will review some of the dangers and pitfalls which the industry has overcome in the past, and, even more important, take a good look at the future - particularly the long term future of supply and demand, and the political factors which underlie them. Thirty-five years ago we were gravely concerned over our vanishing oil resources. At that time one of the pundits of the economic world recommended to his friends that they sell their oil stocks for the reason that the industry would soon have no raw material with which to work. At the same time, a Kansas professor strongly advised against "senseless joy-riding," as he considered it a waste of precious natural resource which, in his opinion, should only be sold at a very high price as, of course, a measure of conservation. However, our Kansas professor felt also that the way to keep the price high was for the states to siphon-off the profits in high taxes, and he mentioned taxes of a dollar a barrel. Our first and greatest concern then was the scarcity of the basic raw material upon which the industry lived. Eugene Stebinger, then chief geologist of the U. S. Geological Survey, had estimated the possible world reserves at under 30 billion bbl. MidContinent crude sold for over $31 bbl. Since that time we have consumed some 50 billion bbl and today our forward supply picture has never been more promising.