A Blow Against Freer Trade

FOR the fifth and final time last week, Defense Mobilizer Arthur S. Flemming issued a blunt warning to the U.S. oil industry to restrict oil imports voluntarily or face strict Government quotas. Noting that all imports have jumped 38% (to 1.4 million bbls. daily) since 1954, and currently comprise 20% of U.S. consumption, Defense Mobilizer Flemming told importers to cut next year's shipments from the Middle East by at least1% (to 299,000 bbls. daily), also announced that he hoped to reduce imports from Canada and Venezuela as well. Though the cuts are small, the principle is important. ODM's great fear (and that of most independent producers, i.e., generally the smaller companies who produce but do not market oil) is that increasing supplies of foreign oil will seriously damage the nation's oil industry, thus "endanger the national defense." But not every oilman agrees with ODM.

The independent producers do, and they argue bitterly that cheap foreign oil is wrecking domestic markets, keeping prices at low levels when they need more money to pour into new exploration. Importers (i.e.. Gulf Oil Corp., Shell Oil, Standard Oil of N.J.) counter that high imports are necessary to keep down prices by filling the gap between U.S. production and consumption, and that the import restrictions are in conflict with U.S. aims for freer world trade.

Actually, there is right on both sides. To stay healthy,, domestic producers must constantly find new reserves. Yet, in the past decade, while U.S. oil demand has risen 71%, proven domestic reserves have increased only 48%. One big reason is that oil is getting harder and more expensive to find. According to Independent Petroleum Association of America, the cost of finding, developing and producing oil and gas has jumped 43% since 1948 v. a mere 6.5% increase in the general level of crude-oil prices.

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Thus, as reserves and relative profits decline, say independents, they are steadily losing ground as the nation's primary oil explorers while the U.S. depends increasingly on risky foreign oil. The vast oilfields of the Middle East are likely to be neutralized in an emergency, leaving the U.S. dependent for its supply on a domestic industry that it has let slip behind. What independents want is a much bigger cut in imports than ODM's scheduled 1%, and a price rise large enough to enable them to pour more money into exploration.

Most importers argue that the industry is not so badly off as independents claim. According to Interior Department statistics for 1955, oilmen drilled more wells (31,567), had more wells pumping oil (537,682), had greater proven reserves (some 30 billion bbls.) than ever before, and earned a record $1.6 billion, nearly 15% more than in 1954.

The main supply-and-demand argument against restricting imports, however, is the fact that domestic oilfields will not be able to keep up with rising U.S. needs under any circumstances. Says Otis H. Ellis, general counsel of the National Oil Jobbers Council: "We constantly hear that 'there is no security in foreign oil. A more appropriate slogan would be,"There is no security without foreign oil." " With one-seventh of the world's crude-oil reserves, the U.S. consumes 9,000,000 bbls. of oil daily, well over 50% of the world's production. The Chase Manhattan Bank predicts that U.S. oil demand will rise another 53% in the next decade, to some 12.8 million bbls. daily. Yet estimates are that domestic production will probably not exceed 10 million bbls. daily, leaving a net deficit of 3,000,000 bbls. that must be made up from imports.

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Importers admit that there is indeed some risk involved with Middle East oil. However, they argue that, short of actual war, the oil can be kept flowing. Furthermore, importers point out that to cut back oil imports now would be a damaging blow to their competitive position. Currently, some 20 companies are exploring around the world for oil. If U.S. markets are closed to them, it will not only slow down exploration, but it will also damage the overall position of the U.S. itself in future years when domestic markets are increasingly dependent on foreign oil supplies.

Eventually, the domestic producers' worries about oil imports will disappear without Government restrictions. Says General Ernest O. Thompson, chairman of the Texas Railroad Commission, which controls the flow of oil from Texas fields: "The problem is on high center now, but time will eventually work it out." In the not too distant future, world oil demand will climb so high that all available production both in the U.S. and abroad will be needed. For the short run, restricting imports would not only place a heavy burden on diminishing U.S. oil reserves; it would also undo much of the good will the U.S. has built up in its efforts toward freer trade.

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