Foreign Relations of the United States, 1955–1957, Foreign Aid and Economic Defense Policy, Volume X

207. Letter From the Director of the Office of Defense Mobilization (Flemming) to the Oil Importing Companies¹

Washington, October 29, 1955.

In a letter dated August 5, 1955,² I called attention to my responsibilities under the Trade Agreements Extension Act of 1955³ and to recommendations of the Presidential Advisory Committee on Energy Supplies and Resources Policy concerning imports of oil. In addition, oil importing companies were requested to provide me with information on oil imports during the first seven months of 1955 and the corresponding months of last year together with statements of the import policy for each company with respect to the remainder of 1955 and the first six months of 1956.

In a subsequent letter dated September 12, 1955,⁴ I advised the oil importing companies that on the basis of information furnished by them it appeared (a) that imports of crude and residual oils had increased more rapidly than the domestic production of crude oil, (b) that half the companies reporting imports of crude oil had exceeded the ratio recommended by the Presidential Advisory Committee and three-fourths of the companies reporting imports of residual oils had exceeded that ratio, and (c) that unless company policy changes were made, the imports would continue to be substantially above the standard recommended by the Advisory Committee. This trend of developments naturally pointed to the conclusion that, in the absence of individual voluntary action over and above that already taken, it would be necessary to seek other means of implementing the recommendations of the Advisory Committee.

The information furnished by importing companies, and that available from other sources, has been reviewed and evaluated in terms of the responsibilities of the Director of the Office of Defense Mobilization, including the specific responsibility imposed by Section 7 of the Trade Agreements Extension Act of 1955 (P.L. 86).

Viewed in broad perspective, the results of this factual review may be highlighted as follows:

The Oil Industry and the Level of Economic Activity

1. Stimulated by a steadily rising level of general economic activity, both domestic producers and importers of petroleum products have enjoyed an expanding market substantially above the level anticipated at the time the recommendations of the Advisory Committee were announced. At that time (February 1955), the contraction of our economy which characterized 1954 had already given way to increasing production and employment on a broad front. By September 1955, industrial production had reached a record level 14 per cent above last year.

Crude Oil—Expanding Demand and Domestic Production

2. Responding to a record total demand for crude oil nearly 7 per cent above last year, total domestic production of crude oil during January–September 1955 exceeded 1954 by nearly 6 per cent, despite a slight decline on the West Coast. East of the Rockies domestic production was 7 per cent above 1954. Exploratory activity, as indicated by drilling, has been 12 per cent above 1954, while well completions were over 7 per cent higher. The average price of crude oil at the well has remained stationary during 1955 at the postwar peak level of $2.82 per barrel. Stocks of crude oil on September 30, 1955 were down 20 million barrels or at the rate of 55,000 B/D from September 30, 1954. While imports of crude oil during January–September 1955 were 16 per cent above the same period in 1954, the increase of 105,000 B/D represents an excess of 67,200 B/D over the amount allowed by the Committee recommendation, or less than 1 per cent of total U.S. crude oil demand in the same period.

Residual Fuel Oils—Total Demand Up, Domestic Production Stationary

3. A sharply expanded total demand for residual fuel oil this year, exceeding 1954 by 8 per cent, failed to bring forth a larger domestic production. During January–September 1955 domestic production remained practically unchanged from the level of 1954. Supply was further tightened by an export volume 26 per cent above the level of 1954. Stocks were drawn down during the first 9 months of 1955 by nearly 5 million barrels, averaging 20,000 bbls. daily, whereas they increased 27,000 bbls. daily on the average during the same period 1954. While imports during January–September of this year were up 70,000 B/D, or 21 per cent over the level of 1954, this represented an excess of 51,000 B/D over the Committee recommendation, or approximately 3 per cent of total domestic demand.

Imports Compared with the Committee Recommendation

4. The recommendations of the Advisory Committee on Energy Supplies and Resources Policy, released on February 26, 1955, did not allow opportunity for importers to make adjustments which could be reflected in the statistics of the first quarter. Because of contractual obligations and related circumstances, some companies were unable to effect significant adjustments until much later.

5. Comparing actual and scheduled imports of residual fuel oil for the period subsequent to the first quarter, namely April 1–December 31, 1955, with the amount of imports allowable under the Advisory Committee recommendation, there will be residual fuel oil imports of 7,000 B/D under the Committee recommendation, if present programs are carried out. For the third quarter the excess of imports over the Committee standard declined sharply and in the fourth quarter scheduled imports will drop below the Committee recommendation.

6. Comparing actual and scheduled imports of crude oil for the period April 1–December 31, 1955 with domestic production (partially estimated), and excluding the special case of imports of Canadian origin, mainly into the Northwest deficit area, there will be an excess of imports of crude oil over the Committee standard, if present programs are carried out, of 50,000 B/D. This is approximately 7 per cent above the Committee recommendation and is under 1 per cent of total crude oil demand. Leaving aside certain unevaluated information recently received, it is clear that certain importing companies have made commendable efforts to follow the Committee recommendation, including importers of oil from Venezuela who, we understand, have been encouraged in this effort by the Venezuelan Government. Nevertheless, these efforts have not been sufficient to bring actual and scheduled imports of crude oil into a satisfactory relation to the Committee standard.

Conclusions

The Presidential Advisory Committee on Energy Supplies and Resources Policy, after appropriate consultation, has concluded:

(a) With respect to residual fuel oils, actual and planned imports for the period April 1–December 31, 1955 appear to be in accord with the Committee recommendation, on the basis of information now available.

(b) With the exception of oil of Canadian and Venezuelan origin, and assuming that imports from these areas do not rise appreciably above present levels, importers of oil from other areas should further reduce their planned imports of crude oil for the period April 1–December 31, 1955 by approximately 7 per cent, if a substantial conformity with the Advisory Committee recommendation with respect to crude oil is to be achieved.

I have accepted the conclusions of the Committee and am communicating them for the guidance of each company on a voluntary basis.

Because of a lack of clarity in the program statements of some of the importing companies for 1956, I have not presented a statistical projection of the import situation for that period. However, my continuing responsibility under Public Law 86 imposes the necessity of seeking full information as a basis for such action as may be required.

A request for reporting on a systematic basis will be forwarded within ten days. It is my hope that the first reports will make it possible for us to find that voluntary action has been taken by all companies of such character, both with reference to the last quarter of 1955 and the first quarter of 1956, as to constitute substantial compliance with the Advisory Committee’s latest conclusions as set forth in this letter.

Sincerely yours,

Arthur S. Flemming⁵

1. Source: Department of State, Central Files, 411.006/10–2955. The source text bears no drafting information. A copy of this letter was circulated to the members of the Presidential Advisory Committee on Energy Supplies and Resources Policy under cover of a memorandum dated October 29 from Joseph F. Vaughan, Committee Secretary, who stated in part that the letter was “released to the oil importers today by Mr. Hemming.”
2. Not printed. (Ibid., 411.006/8–1055)
3. Public Law 86, enacted June 21, 1955; for text, see 69 Stat. 162.
4. Not printed. (Department of State, Central Files, 411.006/9–1555)
5. Printed from a copy that bears this typed signature.