Bradshaw
Governments today do everything they can to try to keep the price of oil down, but it wasn’t always that way. Toward the end of the Great Depression, Louisiana and some other states tried to boost it on purpose. Oil wasn’t bringing in the taxes it once did.
State authorities realized oil’s potential as a new source of revenue almost immediately after the Heywood well near Jennings started the oil industry here in 1901, and Louisiana quickly became dependent on our underground wealth – oil, gas, sulphur, salt – for easy money. That became a big problem when the Depression sent mineral prices tumbling.
Governor Earl Long and Conservation Commissioner Ernest Clements took matters in hand in August 1939 and sent telegrams to several hundred Louisiana oil operators, ordering them to stop production for two weeks “as a move to bolster the dropping price of crude oil.” The order affected 2,300 wells that produced 241,000 barrels a day. About 2,000 small “stripper” wells that together pumped about 15,000 barrels a day were allowed to keep flowing.
Bradshaw
The oil companies grudgingly went along with the idea in hope of increasing profits. They shut down most of their wells not only in Louisiana, but also in Texas, Oklahoma, Kansas, New Mexico, and Arkansas. These states were members of an Interstate Oil Compact that was formed in early 1935 to work together to get more money for their crude.
In the 1920s oil stayed near two dollars a barrel, but the price plunged to 65 cents a barrel as the Depression deepened in 1931 and stayed there. At that price, it was hardly worth producing oil from existing wells and new ones were out of the question.
That prompted Oklahoma Governor William Murray to lead an effort to convince the federal government to let states regulate their own production (and prices). The federal government vetoed the idea, and oil industry oversight was included in the National Industrial Recovery Act (NIRA) enacted by Congress in June 1933 as one of President Franklin D. Roosevelt’s Depression recovery schemes.
The law did little to help the oil business (or very many others) and was declared unconstitutional in 1934. That allowed the states to finally form the compact that organized the 1939 production holiday. Its goal was to force the price back to at least a dollar a barrel.
The scheme worked, but barely. The average price during 1940 was $1.02, and it stayed close to that mark throughout World War II, when gasoline and tires were rationed and factories were turning out military vehicles, not gaspowered cars.
The price didn’t reach $2 a barrel until the late 1950s and hung in that range until 1973. It leapt into double digits after Arab producers began an embargo during what became known as the Yom Kippur war. By the end of the embargo in March 1974, the global oil price had climbed to nearly $12 per barrel.
More trouble in the Middle East brought the next big jump in 1991. The Persian Gulf War began in August when Iraq invaded Kuwait in an attempt to grab its huge oil reserves. Crude climbed almost immediately to $40 per barrel but came down relatively quickly after the U.S, invaded Iraq, remaining around $25 during the 1990s.
A barrel of crude sold for more than $40 during another bout of Mideast tension in 2004, and went above $60 in August 2005. The price reached $75 by the middle of 2006 and dropped back to $60 by the early part of 2007. Then speculators went crazy in 2008. A barrel of crude reached an all-time high of $147.27 that summer.
The price finally settled in 2009, but went back above $100 in 2011, during what might have been a rehearsal for current events. Turmoil, particularly in Egypt, brought the threat that a tiny waterway, the Suez Canal, would be closed to tankers that carried more than two million barrels per day. That drove prices to $95 a barrel in late February 2011 and then to $112 that April.
Nobody knows what’s going to happen when the current situation calms down, but none of the socalled experts foresee anything that would cause governors to think about forming compacts to raise the price. Most of the forecasts I’ve seen say that crude will stay in the $100 range well into 2027, but several predict $200, and one economist says that $300 a barrel “cannot be ruled out.”
The only consolation is that the economists usually get things wrong as often as they get them right.
You can contact Jim Bradshaw at jimbradshaw4321@ gmail.com or P.O. Box 1121, Washington LA 70589.
