Overproduction in Illinois

Last week international oil became Page 1 news. Great Britain ordered her merchant ships and tankers bearing oil from the Near East to get out of the Mediterranean and stay out (see p. 30). Intransigent Mexico made a deal with big-chinned Harry Ford Sinclair (see p. 42) cracking the anti-expropriation front of the U. S. oil industry. Yet U. S. oilmen, whose troubles are their own, did not expect either of these events immediately to help or hurt them much. For Britain, which can at any time add the better part of Norway's fleet of 272 tankers to her own, can haul its Near East oil around the Cape of Good Hope, and is not likely to spend precious foreign exchange buying U. S. oil until she has to. And while Sinclair's deal is for 20,000,000-30,000,000 bbl. of Mexican oil, his Consolidated Oil Corp. will take it out of Mexico at a rate of not more than 400,000 bbl. a month--which, for Texas or California, would not be a respectable day's production.

What concerned U. S. oilmen last week was a purely domestic problem: how to get their domestic supply in hand. For months the U. S., which last year produced 62% of the world's oil, has turned out more gasoline than it can sell or use. Last week's tabulation set the inventory glut at 102,452,000 bbl., up an astonishing 44% from last year's none-too-low September bottom, down only .4% from a record top the week before.

Two things in particular accounted for the brimming gasoline tanks. With Germany out of the market, with French and English car-owners rationed to spoonfuls, World War II, after the first flurry, had reduced U. S. crude and refined petroleum exports by some 20%. Still more potent was a prolonged U. S. winter which had unexpectedly boomed the demand for fuel oil by 28% over the year before. Result: running crude through the stills to get oil for heating, refiners as a by-product ran up millions of gallons of gasoline.

Next year, oil's flexible refining technology will be used with a more alert weather eye to adjust fuel oil-gasoline ratios more nearly to fit demand. Oilmen can only wait to see what war will bring by way of an export market. But always dependable are U. S. motorists; last week their demand for gasoline was up about 6% over 1939. Yet oilmen still had small reason to hope that rising U. S. consumption would knock the hump out of gasoline's inventory curve. Nor were war and winter alone to blame. More important than either in oil's overproduction is an unlovely derrick forest in Southern Illinois.

Few years ago geologists of Pure Oil Co. tabulated their seismographic readings and quietly reported that there was OIL. Pure Oil's hand was tipped to other operators early in 1937 when it began to buy up Illinois leases. Today Illinois is the No. 3 U. S. oil-producing State. Her daily production (around 430,000 bbl.) is more than enough to satisfy the estimated present needs of France and Britain combined. It is around 30% of Texas' output, 70% of California's, 105% of Oklahoma's. Scrambling in a devil-take-the-hindmost race to get the oil out of the ground, Illinois producers have transformed the business from a partially regulated hurly-burly into a madhouse.

To the impoverished farmers of Illinois' "Egypt" oil brought new autos. For such big companies as Texas Corp., Shell, Carter (owned by Standard of New Jersey). Pure Oil, and Magnolia (owned by Socony-Vacuum) it meant a new source for raw material, handy to Illinois' great network of pipe lines and railroads. To producers in Texas, California, Oklahoma and elsewhere, it brought nothing but bad news.

For while producers of other States are subject to State proration (like Texas. Oklahoma) or have agreed to voluntary control of their production (like California), Illinois production is as unfettered as a cornfield crow. Last August Illinois' production had so weakened the props under crude-oil prices that six States (led by Texas) shut down for two weeks. Last fortnight, Texas had to take heroic measures again. Texas' allowable 10% production for May was cut to 1,421,176 bbl. a day.

From the testimony of competent geologists, oil producers in other States can find some comfort for the future: their consensus is that Illinois has reached its peak. Barring discovery of new fields (or new producing levels), Illinois output is expected to drop back slowly to around 350,000 bbl. a day. And some day Illinois may stop talking about free exploitation and pass a proration law of its own. Meanwhile U. S. oilmen still have their present inventories to worry about.

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