The Prize, Chapter 13 Overview

The Prize, Chapter 13 Overview

As you look back on history, one can point to pivotal events that change things for the long haul. The discovery of the East Texas oil field was one of those. It came at a time when there was concern of dwindling domestic reserves. This brought some confidence and stability to the markets. But it also brought back our old friend overproduction. And again, we had oversupply and collapsing prices. This time, government and industry self-imposed controls were tried. But this created a new problem, “hot oil,” or what we would call today “black market oil.”

Finally, there was stability brought about by the regulatory system in place for the oil industry, and it had taken East Texas oil at about 10 cents a barrel to get the industry and producing states to move in that direction. Other factors that contributed to making it happen were the advances in petroleum engineering, the Great Depression, and President Franklin D. Roosevelt’s New Deal. Two compelling assumptions were central to the regulatory system: 1). Demand for oil is not responsive to price (i.e., demand at 10 cents a barrel would not be much different from demand at $1 a barrel, especially in the Depression) and 2). Each state had its “natural” share of the market.