Oil wants the sanction of public government wherever its own private practices risk running counter to the legal or value systems of the American people. Thus it receives State Department and National Security Council backing in setting up and maintaining an essentially cartel patterning of world oil production which keeps the control of oil from the well to the ultimate consumer under the apportioned domination of seven major companies and their intricately linked affiliates. As part of its price for contributing to war mobilization during World War II, oil pressed for and received a moratorium from anti-trust investigation and litigation.
Since 1935 the industry has received periodically from the Congress basic legislation authorizing an Interstate Oil Compact Commission. With conservation its avowed objective, this body serves as an effective meeting place for coordinating the official production and pricing controls characteristic of most oil states and designed to ensure that production never outruns “market demand,” i.e., the amount the industry estimates is likely to be consumed at industry-set prices. This has been a consistent objective since the earliest days of oil history when production quotas were set secretly by private groups. Nominally an organization of state officials, the Commission is under the constant surveillance of the oil companies who have always recognized it as an instrument for forestalling federal regulation. In past years oil companies have flown state members to the meetings, and the natural gas industry has footed banquet bills. The technique is more sophisticated today, although as usual the industry’s vast private airplane fleet remains one of the significant ways the industry has for flattering and serving modestly paid political and administrative personnel at all levels. (In 1953, the Aircraft Industries Association reported the oil industry had more planes than the scheduled airlines.)
The market forecasts from the US Bureau of Mines and the production quotas set by state agencies, notably the Texas Railroad Commission, are in effect industry predictions made under the protection of public law. Oil thus avoids the twin horrors of competition and anti-trust action. Production in excess of the prorationing orders of state agencies violates state law, just as interstate shipment of such “hot oil” violates the Federal Connally Act. Prorationing is favored by the states to help independent producers get their share of the market, but the real power remains in the hands of the pipelines and refiners far beyond state boundaries. Potential oil states are fitted into this system by conservation (market demand) laws introduced even before oil is found. After the late Senator Kenneth Wherry (R. Neb), never noted for his hostility to business, investigated this entire operation, he suggested that the President should suspend the Connally Act because of its use to create shortage and maintain price. Concluded his Small Business Committee: “There is a mechanism controlling the production of crude oil to market demand that operates as smoothly as the finest watch…”