The Economics of Petroleum Pricing

Well, you mentioned in one of your last talks

that petroleum wasn't what we thought it was, that it wasn't-

Mm

... a fossil fuel, that it didn't come from fossil animal-

Yeah

... i- is it just a mineral? Is it a mineral like any other mineral?

Is that, is that how it,

is that how it, uh... What would you say?

Uh,

how did it... What's the origin of, of petroleum?

You see,

when they first found petroleum, uh, because they were beginning to make

motors and, and, and needed it on axles of wheels on

railroad trains and all that

sort of thing,

and remember, trains started in the beginning of the

19th century,

then oil went from a, just a lubricant to a fuel,

and it made it valuable.

And Rockefeller happened to be the smartest man in the business at the time,

but he made a lot of most of his money or much of it off the transport of the

petroleum as well as selling it.

But one thing they realized was

if you... 'Cause oil, uh, oil is, uh, putting a price on oil is like putting a

price on a pail of water, you know? There, there's no, no initial cost.

It's in the ground and, and in those days they were,

some of it almost what you'd

call surface mining the oil. They didn't go down deep.

So in order to get the price up, they hit on the idea

that they would have to

make it appear to be scarce, that the, that, "Boy, ne- after we take the next

few barrels out, we're probably gonna have to close as

well." You know, that kind

of thing.

But a very fortuitous event, in 1892,

there was a convention in Geneva o- of scientists to

determine

what organic substances are.

Well, the definition of organic is a substance with hydrogen,

oxygen, and carbon, and so it's usually a living

substance. A tree. You analyze a dead tree,

hydrogen, carbon, and oxygen. And grass and so on.

Living things. Animals. We are hydrogen,

oxygen, and carbon.

So at this Geneva convention,

Rockefeller took advantage of sending some scientists over

who said

oil, petroleum is hydrogen, oxygen, and carbon,

therefore it must be derived from the,

uh, the spoiling, the rotting of formerly

living matter.

And, uh, playing the game properly when the, this scientific

convention was over, they defined oil as the,

the residue from formerly living matter.

Well, that makes it a fossil fuel. I don't know why they decided to use the

word

fossil, but it says formerly living matter,

it's fossil.

Well, of course, today, and, and, and another thing we should know is

that there

has never been a fossil, a, a, a, uh, real

fossil found below 16,000

feet. And you can't argue at 16,000 there's a

level line

because someplace the ground sinks and so on, but 16 is

what the scientists say. 16,000.

We mine oil, or we, we drill for oil at

30,000, 33,000, 28,000 every day of the

week. So right there we rule it out that it isn't

fossil fuel. It's called fossil fuel

for the minds of the public to feel that it is a,

a, an asset that is running out, being depleted.

We talk about depletion allowance, which is a lot of, you know.

And actually if you

know the world's oil supply, you know that it

is not gonna run out for an awfully long time.

It is the second most prevalent liquid on Earth.

After water.

And, and we haven't begun to dig. Well, with all that background,

you see, the people in charge of the petroleum

business, for

perfectly reasonable business, uh, things, like any other man in the

business, wants to keep his price as high as he can

get away with,

and the way to do is just say, "Well, there's no more. We, we, we...

The last barrel is gonna cost $1,000 and then it's all done."

And, and they preach that stuff. What bothers me is that, that

in geology books it's in there. The geologists

say it's a fossil fuel. They, they, somehow they've been bought.

I mean, you...

I, I went to a four-year federal staff energy

seminar run by the government of the United States during the

so-called energy crisis. I was the participant that represented

the railroad industry. The airline industry was there.

Every AA, administrative assistant of senators

and congressmen was

there. The CIA was there. The Defense Department was there.

The State Department was there. Sometimes sitting right in front of me in

the row

would be Henry Kissinger with his friend, um, uh,

the, the head of, uh, Department of Defense, uh...

It's too bad. I can't put the names with them.

But anyway, people like that, top men in the government sitting there

listening to the federal staff energy seminar.

Well, what this was doing is for four years they were

teaching a propaganda line to the leading people in this

country, and therefore to the leading people in the

world when you include the

Kissin- uh, Schlesinger. Kissinger and Schlesinger among others.

And the object of it was, as Kissinger used in his own

terms when it was time for him to speak, to create a

world price for oil. In other words, not,

uh, 30 cents a gallon here and 90 cents a gallon there, but let's get

a world price. That's their goal, and they're trying to do

that for wheat and

everything else. We don't realize what

i- what the controls are, whether it's oil or some of these other

things.

Almost everything today is being categorized at the

highest price they can possibly make it go.

And so calling petroleum a fossil fuel is the

basis for th- this system, uh,

with respect to petroleum.

Oh, that's interesting.

And, and I went... I don't know if the name Arthur Kantrowitz r- bring,

rings any bell. Arthur Kantrowitz is the head of the

Kantrowitz Labs

set up by the, uh, Avco company, uh, near Boston.

Uh, scientific laboratories.

And, um, a great man in the scientific world.

And Kantrowitz and I were sitting at a table at this, uh, s-

seminar once, and the table happened to be all

young college grad PhD geologists.

And so just to get a conversation started,

I turned to Kantrowitz and I said, "Arthur, what do you think about this

foolishness of these speakers talking about fossil fuel?"

And, uh, as kind of put up. He started laughing.

He said, "You know, that gets me." He said, he says,

"I don't..." He said, "I don't

have a geology degree," but he had 1,000 other degrees

and he said, "I don't

understand it." He said, "You'd think..." And then these heads of

these other

fellows at the table, we did it on purpose- ... start listening,

you know.

And he asked, he said, uh, "Are you gentlemen..." He says,

"You're here at the me-

Are you g- gentlemen by any chance geologists?"

And one fellow, "Yes, I am," and

the other, "Yeah." He said, "Well, why don't you tell me?" He said, "What?

Why is, why is oil..." You know, and he went on like that.

We brought the house down 'cause nobody could argue with Kantrowitz.

He like, he like Einstein, people aren't gonna...

And he told them right there, he said, "Just drop it." But it's,

it's in all the books and in all the papers.

But it started from that strange meeting in 1892, a

scientific convention in Ge- I have a big, thick

scientific encyclopedia put out by the Devon Austin Company that's about,

oh, 15 years old now, but it has the whole story of the

conference. It doesn't have the Rockefeller part,

but it has the whole story of how

they straightened out organic chemicals and how it was all figured, and they've

got petroleum right in there.

Amazing. Amazing. So-

These aren't accidental things, you see.

There's a dollar sign behind almost everything