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There has been an expansion in foreign refining capacity and the announcement of plans for still more construction since the completion of the quoted report to the Senate committee. In order to supply steel necessary for this increased foreign oil activity, exports of steel, so greatly needed in our domestic economy have increased manyfold during the past 10 years. The Oilgram of December 17, 1946, carries a report of the approval of a projected 1,200-mile pipe line from Kirkuk, Iraq, to the Mediterranean ports which will add about 90,000,000 barrels of crude a year to present pipe-line facilities in this area. -In the World Oil Atlas, published May 20, 1946, by the Oil Weekly, of Houston, Texas, it was stated that a new refinery of 75,000 barrels capacity had been placed in operation in Saudi Arabia and that the refinery on adjacent Bahrein Island was being enlarged. Both refineries and all the production belong to American companies.

The capacity for refining Venezuelan crude in the area of production is being increased in an amount of 140,000 barrels daily. This capacity for refining Venezuelan crude, including those refineries in the Dutch West Indies, before many months will exceed 775,000 barrels daily. The point is repeated that the trend is toward greater and ever greater quantities of foreign petroleum products available to enter the markets of the United States.

EFFECT OF TRADE AGREEMENTS ON U. S. PETROLEUM IMPORTS AND EXPORTS

A study of our foreign trade in petroleum and its products reveals no evidence of any benefits to the American petroleum industry resulting from the Trade Agreements program. On the other hand, there is ample proof that the trade agreements have been harmful to the domestic industry.

Tables No. 1 and No. 2 contain official government statistics on petroleum imports and exports from 1920 through the first nine months of 1946. From these figures it is possible to trace the changes in petroleum trade in relation to the concession granted in the various trade agreements.

Table No. 3 presents dollar value of petroleum and petroleum products imports according to the Department of Commerce statistics since 1933. Imports reached a dollar figure in 1945 which is the highest in history and nearly four times the 1933-1939 average.

First, the trend of imports of crude petroleum and its products into the United States is pictured graphically on the chart, Showing the Effect of Excise Taxes and Trade Agreements.' It is immediately apparent from this chart that the excise taxes imposed by the Congress in June 1932 resulted in a sharp drop in the volume of foreign oil entering the domestic market. From the middle of 1932 through the year 1939 imports rose gradually but maintained a constant ratio to U. S. oil demands. In other words, as consumption of petroleum products increased, imports also increased proportionately, taking a relatively small percentage of the total market and permitting the domestic producers to adjust their operations so as to efficiently supply all but a small part of the nation's needs.

In December of 1939, however, these excise taxes-which signified the obvious intent of Congress to protect the domestic petroleum industry-were reduced by 50 percent in the agreement with Venezuela. The sharp increase in imports that followed this action is clearly shown on the chart. That these larger volumes of foreign oil were the direct result of the Venezuelan agreement is beyond question That was the purpose of the agreement. There could be no reasonable claim that this oil was needed as the state regulatory bodies were experiencing difficulty in restricting domestic output to market demand and above-ground stocks were increasing rapidly.

After the entry of the United States into the war, tanker movements were seriously disrupted and imports as well as coastwise shipments of petroleum were curtailed.

In January 1943 the trade agreement with Mexico became effective and removed the quota established under the Venezuelan agreement on imports permitted at the reduced tax rate. Further encouragement was thereby given to bring in larger quantities of foreign petroleum. Imports have risen sharply following the Mexican agreement as tanker movements became less affected by enemy submarine activities and shortages of vessels became a less important factor. By 1946, the first postwar year, petroleum imports reached an average of 378,000 barrels per day for the first nine months of the year. This is an all-time 1 See page 1221 and 1233.

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TWENTY YEAR HISTORY OF TOTAL PETROLEUM IMPORTS SHOWING EFFECT OF EXCISE TAXES AND TRADE AGREEMENTS

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record and about two and a half times the 1936-39 average of 156,000 barrels daily for the four years immediately preceding the Venezuelan Agreement. In contrast, total United States petroleum demand has increased only 45 percent as compared with the 1936-39 period which indicates that foreign oil is taking a larger and larger portion of the market formerly supplied by the domestic oil producers.

It is clear from these developments that the concessions granted on imports under the trade agreement program have been injurious to the American petroleum industry. Turning to the matter of petroleum exports, there is no evidence that the industry has benefitted from the agreements by any expansion of oil export markets.

The history of petroleum export trade presented in Table No. 2 does not show any indication of gain in foreign markets for the domestic industry. About the only conclusion that is warranted from a study of these export trends is that factors outside the control of any trade agreement have far greater effects than any concessions made by foreign governments. Due to the desire most of the large nations to become increasingly self-sufficient as to oil supplies, foreign governments adopted policies early in the 1920's to encourage both production and refining within their own boundaries. As a result, the United States lost ground, as far as its share of the foreign markets was concerned, steadily from 1924 to 1934. It is an interesting fact that the most rapid expansion in petroleum export trade in the past twenty years took place during the period from 1933 to 1938 when exports rose from 292,000 to 531,000 barrels per day. This large increase occurred at the time when effective controls on imports restricted the volume of foreign oil coming into the United States. The opponents of import controls had claimed that such import restrictions would reduce our export trade by diverting oil that would have been imported into foreign markets. Actual developments not only failed to support this contention but tend to prove the exact opposite.

Summarizing the situation as to foreign trade in petroleum and its products. the following comparison of prewar trade with 1946 reveals the effect of State Department action under the trade agreements program upon the American petroleum industry's exports and imports.

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From these figures it will be seen that our foreign market for petroleum has shrunk by 35,000 barrels per day while imports into our domestic market have increase 218,000 barrels daily. This represents a net loss to the American industry of 253,000 barrels daily since the trade agreement program became effective.

Contrary to the purport of the effect of the Trade Agreements, as reflected in the President's statement quoted on page 13, here is evidence of an important segment of American industry being "traded out.”

INCREASED PETROLEUM IMPORTS NOT NEEDED

The increased volume of imports that are already entering the domestic market, and the even larger volumes that now threaten, are not needed. The domestic industry is capable of meeting present demands without waste and without reliance upon greater quantities from foreign sources. Voluminous

testimony of recognized authorities is available to support this conclusion, Spokesmen for the few large importing companies have been conspicuous in the industry in expressing contrary views.

In another section of this brief, facts are presented showing that total petroleum supply has been far in excess of consumption since the close of the war and that increased imports have aggravated this condition. Hundreds of thousands of barrels of petroleum products per day have been produced and have gone into storage because there was no demand for those products.

One of the principal arguments advanced by those who attempt to justify the need for larger imports is based on the contention that the domestic industry is unable to meet the demands for fuel oil-particularly residual or the heavier grades from domestic sources and will experience increasing difficulty in satisfying these fuel oil demands unless larger imports are available. It is claimed that the heavier types of foreign crude oil provide a more efficient source of fuel oil and this reasoning is even carried to the point of trying to show an actual benefit to the domestic crude producers from relinquishing a greater part of the market to foreign oil. This campaign in support of the great advantages presumed to result from larger imports for fuel oil has been actively carried on by many officials of the larger importing companies in the industry. Almost without exception, these officials are employed by the companies that have extensive foreign oil properties and will unquestionably profit from any increase in imports at the expense of domestic production. This campaign apparently has been most effective particularly with those in the Federal Government not closely familiar with the operations and economics of the petroleum industry. The arguments employed have been plausible and the fact that many important considerations are omitted or ignored has often passed unnoticed. To fully appreciate the issues involved in the question of fuel oil demands and whether they can be met from domestic sources requires a comprehensive knowledge of the various types and grades of crude petroleum, the techniques of refinery operations and an understanding of the functions of price in the supply and demand of both the various petroleum products and competing fuels such as coal and gas and many other factors. Hundreds of different products are derived from a barrel of crude petroleum. In the case of each product, there are problems of supply, demand and price and yet it is impossible to consider any one product separately without considering the effects upon the other products and upon the raw material-crude oil. This is particularly true of fuel oils which represent a large percentage both in quantity and in value of the realization from a barrel of crude petroleum. The following tabulation shows the principal products manufactured from crude petroleum in the United States during the year 1945:

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From the above figures it will be seen that distillate and residual fuel oil production totalled 718,716,000 barrels during 1945, larger than the total gasoline volume and almost 42 percent of the total products manufactured from crude petroleum. More than 90 percent of this fuel oil was derived from domestic crude rather than foreign. It is obvious, therefore, that fuel oil represents a very important part of the total return from domestic output.

It must be realized that refinery operations permit a wide latitude in the

quantities of the various products obtained from crude oil. The following table shows the actual percentage yields of fuel oil, since 1943:

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These figures show that the refineries in the United States have varied their percentage of distillate fuel oil from a high of 17.7 percent to a low of 13.1 and residual fuel from 28.9 to 23.9 percent. This is an actual variation of 4.6 percent for distillate and 5.0 percent for residual. Application of these percentages to the present total United States refinery runs of 4,700,000 barrels of crude per day gives a volume of 216,000 barrels daily of distillate (light) fuel oils and 235,000 per day of residual (heavy) fuel oil. In other words, refineries have actually varied their output by these volumes as supply, demand, or price conditions warranted. The possible flexibility in output is far greater than these figures indicate. These facts show that refineries not only can. but also do, change their production from one product to another. It is entirely possible to meet fuel oil demands by adjustment of refinery yields rather than by increasing imports. It is equally possible to create an apparent need for imports by reducing the fuel oil yields from domestic crude below the market requirements. What the yields will be depends upon company policies. Many of the largest refiners are the largest importers of foreign oil.

Whether the demands for fuel oil will be met from domestic crude or imports is a problem that does not concern the productive ability of the domestic industry. Sufficient crude oil of the proper grade is available in the United States from which adequate supplies of fuel oil can be manufactured if refiners wish to do so. The few companies having access to low-cost foreign oil will not do so as long as they are encouraged to import larger volumes. The hundreds of companies depending upon domestic sources of supply cannot do so if the large imports of low-cost oil make it unprofitable. The fundamental question is whether a large part of each barrel of crude oil will be sold at a loss except by those with access to foreign supplies. Such a policy can have only one result

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