The Near-Term Supply and Demand Outlook for the Petroleum Industry

This paper is in two parts. The first will deal with the current statistical position of the petroleum industry and the supply and demand outlook for the remainder of 1955 and the year 1956. Supporting the conclusions reached will be an explanation of forecasting techniques used. The second portion is a discussion of several economic factors operating in the direction of chronic oversupply for the industry. Brought into focus is the impact of these elements on postwar developments and their probable effect in the near-term future. The title of this paper announces that I am to discuss the near-term supply and demand outlook for petroleum. Near-term in this instance is intended to include the current year and 1956.With three-fourths of 1955 now history, we have a reasonably good idea what the final results will be - providing no abnormal factors suddenly enter the picture. But for 1956 it becomes necessary to bring into play various forecasting techniques. While even the most carefully prepared forecast is admittedly subject to considerable error, it remains nevertheless a useful tool. For policy guidance a look-ahead is necessary. Actual conditions which subsequently deviate from the original estimate as a result of abnormal factors or faulty conclusions usually cast their shadows sufficiently early to permit timely adjustment in operating procedure. Although specific volumes and rates of change will be discussed today, I shall consider the forecast successful if actual results in 1956 are within 2 percentage points of the predictions. Our primary objective is the direction in which the industry will move rather than the exact course. Our forecasting is facilitated by the abundance of statistical data available. Consumption records from the past plus reliable figures for the number of petroleum consuming units expected to be in use permit satisfactory end-use studies. Barring some international incident, weather and general business conditions are the factors most likely to throw a forecast off. Because oil heating represents such an important portion of petroleum demand, a change from normal winter weather conditions has a pronounced impact on consumption rates. With the last 8 winters averaging warmer than normal, there is the temptation to assume a continuation of that trend next year.