Crude Oil Prices in the United States at the Gulf Coast

ECONOMISTS observing the institutional structure of the oil industry and noting the remarkable stability of crude oil prices during the last couple of decades have held generally that these prices are administered or controlled prices rather than prices reflecting the action of a fully competitive market. Statements to the contrary, however, are frequently made by members of state regulatory bodies and spokesmen for the oil industry. It is the purpose of this paper to explore, more fully than has been done up to now, both the elements of control and the forces of competition which are to be found in the price of crude oil in the United States at the Gulf Coast. One cannot with accuracy treat the entire country as a single market for crude oil. The West Coast region, comprising the states of Washington, Oregon, California, Nevada and Arizona, has generally been considered quite a distinct market, the remote oil of the Rocky Mountain area has its own fairly distinct price structure, while the oil industry in the Middle West, with its great diversity of sources of supply, also to some extent stands by itself. We will, therefore, confine our analysis to the price of crude oil at the Gulf Coast. In analyzing this price we may justly claim to be analyzing the most basic oil price in the United States and one of the two most fundamental oil prices in the world (the other important world oil price being the price of Middle East crude). The prices of the Eastern Seaboard, Middle West, Rocky Mountain and even California crudes are to a greater or lesser degree tied to the price known as 'U.S. Gulf', and many people in the oil industry believe that the price of crude oil in the Middle East still is connected closely to this same price. Those who think that crude oil prices are administered prices generally believe that much, though not all, of the control is to be found on the supply side of the market, and it is here where we will begin our analysis. We shall see that the picture is close to that of oligopoly, competition among the few, but oligopoly modified so considerably by the possibilities of entry as to provide what appears to be quite an