The Prize: The Epic Quest for Oil, Money, and Power

by Daniel Yergin

Two working assumptions were central to the system. One was that the demand for oil would not be particularly responsive to price movements: That is, oil at ten cents a barrel would not mean a far greater demand than oil at a dollar a barrel. Demand could be taken as a given, and at least in the Depression, many found that a reasonable thing to think. The second assumption was that each state had its “natural” share of the market. If those shares changed dramatically, the overall system could be threatened. That was exactly what occurred in the late 1930s, when significant discoveries in Illinois made that state the nation’s fourth-largest oil producer. Illinois did not belong to the Interstate Oil Compact. It was a new producer, it wanted into the market, and it went its own way to carve out its own share. Texas and Oklahoma cut back substantially on their production to make way for the Illinois crude. They did not do this happily. There were recriminations and calls for the entire system to be scrapped. Texas announced that it might abandon prorationing altogether and go it alone. Yet the system withstood even the onslaught of new petroleum from Illinois.