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THE OIL BOOM

Restructuring

The oil industry exemplifies the problems plaguing most industries and businesses in the 1930s. The forces of an unregulated, laissez-faire market glutted the nation with oil, driving prices down to a point where the structure of the oil industry was in peril. In contrast to the laissez-faire ideology, oilmen pressured states and the federal government for regulation and control. It was a decade of tremendous oil strikes, plunging profits and panic, restructuring and regulation: in many ways the decade that created the modern oil industry.

Boom

The oil industry struggled to control the effects of several tremendous strikes during the decade. In 1930 wildcatters struck oil in east Texas, opening a reservoir that proved to be 140,000 acres large—the largest strike in the United States at that time. In 1932 wildcatter Robert Samuel Kerr struck oil within the Oklahoma City city limits; his find would eventually earn over $2 million. On 31 May 1932 Standard Oil of California struck oil in Bahrain; by 1936 production equaled 20,000 barrels per day. In 1938 an equally important reservoir was struck in Kuwait and Saudi Arabia. In 1935 Shell Oil hit oil in Kern County, California; the introduction of a new process for cracking oil into gasoline that same year promised to bring this oil to market cheaply.

Effects

The consequence of the oil strikes of the decade was to collapse prices for oil. Wildcatters and independent oilmen moved into the new oil fields and pulled the crude from the ground as fast as they could, saturating the market. In 1926 oil had sold in Texas for __BODY__.85 a barrel; by 1930 the price was a dollar a barrel; by 1931 oil was between two and six cents a barrel—almost eighty cents lower than the cost of production. The situation would have been an unmitigated disaster were it not for decreased demand because of the Depression, but the Depression also supplied a steady stream of desperate wildcatters and novice oilmen seeking to strike it rich. Established businessmen and oil companies feared "competitive suicide" for the entire industry. By 1931 they were seeking various ways to reduce oil supplies and drive up prices: "A dollar a barrel" became the rallying cry and goal for many oilmen.

Control

The oil industry tried several approaches to controlling oil supplies and prices. Large oil companies such as Standard Oil of New Jersey and Royal Dutch/Shell began informal meetings to divide overseas markets and set prices, a tactic impossible within the United States because of antitrust laws. Abroad the oil companies went so far as to specify the amount of advertising each company could do in protected markets, but such agreements were always unsteady and were often violated. In America oil companies attempted to control supplies via government regulation. They succeeded in getting Congress to pass a high duty on imported oil, thus protecting the domestic market, In Texas the state legislature stretched the authority of the state railroad commission in an attempt to shut down oil production, but illegal production and sale of oil continued. Federal control was necessary. The Roosevelt administration, committed to economic planning, was glad to comply with oil industry requests to stanch the flow of cheap oil. On 14 July 1933 Roosevelt signed an executive order empowering federal agents to police the oil fields. Prices began to rise. But the Supreme Courts 1935 decision invalidating the Roosevelt administration's National Industrial Recovery Act undercut the federal regulatory effort. Nonetheless, the oil industry and the Roosevelt administration pressed on with their regulatory efforts, passing the Connally Hot Oil Act through Congress in 1935 and restoring the police powers of the administration. Thereafter, via the Connally Act and the Bureau of Mines, the government succeeded in bringing some discipline to the unsteady oil market. For the remainder of the decade, the price for crude varied between __BODY__.00 and __BODY__.18 per barrel. Most important, however, government regulation of the market became a permanent feature of the oil business—one created and promoted by the oil industry itself.