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| Oil gluts, Great Depression style |
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| News Source：http://www.jinchemical.com/
; SendDate：2014-12-31 14:15:42 |
During the Great Depression of the 1930s, massive oil discoveries in Texas, alongside falling global demand for energy, sent oil prices tumbling downwards. As we reported in 1931, that not only caused investors in oil firms to suffer huge losses, but also contributed to deflation around the world. Today, lower levels of inflation and bruised shareholders are once again the likely consequences of the fall in global oil prices seen since summer 2014.
The stock exchange: The oil outlook
Apr 25th 1931
The oil industry this year has suffered what can only be described as a piece of bad luck. Its efforts last year to bring production into balance with consumption have been rendered abortive by the chance discovery of a prolific shallow oilfield in East Central Texas. Wells have been brought in twenty-two miles apart, and there is no doubt that a major oilfield some thirty miles or more has been discovered. At the beginning of March the production of this new field was only 55,000 barrels a day, but even without the help of a trunk pipe-line its output has already been increased to over 253,000 barrels a day. It is this extraordinary phenomenon which has thrown the American oil industry out of balance once again.
The increase in crude oil production would not have been so serious if the American refiners had reduced the amount of crude oil run to stills at the refineries. It was their expressed intention not to stock up on gasoline during the winter months of this year, which is their usual practice, but to reduce the total stocks of gasoline at refineries to 40,000,000 barrels by April 1st, as against 55,000,000 barrels on April 1st last year. The refineries, however, have failed to live up to their good intentions. Stocks of gasoline at refineries increased to over 47,000,000 barrels at the end of March, and on April 18th amounted to 46,384,000 barrels.
The increasing surplus of gasoline has led to severe price-cutting in both crude oil and gasoline markets. The sweeping reductions in oil prices which have occurred this year are certainly disturbing to oil shareholders, seeing that the operating oil companies must need a further writing down of stocks in their balance sheets. The hope that the balance sheets at December 31st last would have shown the position at its worst must now be abandoned.
For the holder of oil shares it is, unfortunately, clear that 1931 will show worse results in earnings and dividends than 1930. It will be seen that the market quotations for the leading British oil shares are much more deflated than those of the leading American. Having regard to the strong financial position of such companies as Royal Dutch, Shell Transport, Anglo-Persian and Burmah Oil, the market appears to be taking an unduly pessimistic view of the ability of these companies to withstand the present depression in the oil industry. |
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