California Cut

Standard Oil Co. of California normally buys about 15% of its crude oil from independent producers, paying an average of $1 per bbl. Last week Standard of California cut its bids for this oil to 60-c- on some grades, 50-c- on others--first big price reduction in the industry since early in 1933. On the New York Stock Exchange oil shares promptly sagged. Immediate result of the price cut in California was to scuttle the voluntary proration committee which big producers had set up to police the industry. As all the State's major refiners fell into line with similar price reductions, California crude producers were faced with losses of approximately $200,000 a day.

Standard's motive for taking the lead in abandoning "dollar oil" was ostensibly to help reduce the current overproduction in California fields. "Since the first of June," declared the company, "there has been an increasing tendency to break away from proration until at the present time production (in California) is in excess of 600,000 bbl. per day as against an estimated consumptive demand of less than 520,000 bbl. per day. With the passing of the season of peak demand for petroleum the company is confronted with large additions to storage which it is unwilling to undertake, if at all, at the present level of crude oil prices. . . . When it is again demonstrated that production can be controlled to keep within consumptive demand, it is to be hoped conditions will justify a return to higher prices."

Almost immediately the Southern California Oil Producers Association, representing 187 independents in the Signal Hill field at Long Beach, took the hint by voting to shut down their wells until prices are restored to the old level. Describing the price cuts as "needless, highly discriminatory and disastrous," the Independent Petroleum Association of Los Angeles wired Attorney General Cummings: "These new confiscatory prices will enable major companies to fill empty storage against higher prices in the future at the expense of the independent oil producers and the public."

Though it produces 25% of all U. S. crude oil, California has never had a State law to control its output. Rugged California oilmen have thus far refused to sign the interstate oil compact which Congress ratified and which President Roosevelt approved last week. When newshawks last week asked Secretary Ickes, onetime NRA Oil Administrator, why California producers had not cut the price of crude sooner, he replied scornfully: "They were holding it up until Congress adjourned so there wouldn't be any [Federal control] legislation."

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