Evening star., 1933-08-21
j, s. REALIZES OIL
CODE HAS FLAWS
Government Acts Cautiously,
Accepting Responsibility
Reluctantly.
BY DAVID LAWRENCE.

Government control and Government
Guidance for the oil industry may be
two different things, and while they
are for the moment blended into one
this does not mean that Uncle sam is
going to be the boss OF gasoline prices
for all time to come.
Rather it might be said that the
Government is treading cautiously, and
has reluctantly accepted the responsa-
bility of trying to bring order out OF
chaos in a demoraliZed industry ike
oil. Unlike other commodities. oil has
been brought under the control OF va
rious State governments in an effort
to limit output. This imposes lin
itation that affects the price.
There is, however. not always uni
formity between State governments,
and there is necessarily underselhng
and throat cutting competition as well
as bootlegging of oil from State to State
so that probably the biggest single IN.
dustrial mess the Government mas nao
to straighten out is that of the oil IN
dustry.
Code May Be Changed.
The oil code has satisfied none OF
the conflicting elements. Having Walt
ed for them to agree, the Government
stepped in end prescribed code. II
Is not regarded as a perfect solution
bv any means, and may be revised or
changed later if experience dictates.
but for the moment it Is starting
point.
The code endeavors to establish a
fixed ratio between the price at which
crude oil can be sold to the refiner and
the price of gasoline made from the
crude 1t sets up a minimum price be-
low which reflners. wholesalers, jobbers
and retailers cannot sell.
Two basic principles are involved.
One is the fixing of a ratio and the
other is prohibition against price
cutting. which might also be called
prce-maintenance policy.
The implications Of the price-main-
tensnce idea are numerous. If the
Government stands back Of price main
tenance in oil and calls it an unfair
trade practice in one code. it Is in duty
bound to give similar protection in
other codes. The controversy over re-
sale price maintenance has many rami-
flcaticns and has been the subject of
MANY attempts at corrective legislation
for many years.
Empowered to Fix Base Price.
So far as oil is concerned. what has
happened really is that the President
has been given authority to fix a base
price which will give the producers a
sufficient profit to carry on This means,
of course, that the price is we'll within
the reach Of the high-cost producers as
well as the low. 1t will be boon to
the low-cost companies and at the same
time will be the salvation of those pro-
ducing at high cost.
The effect OF the code also will be to
stir up a demand for price regulation
of some of the by-products of oil. like
kerosene, furnace oil. fuel for Industrial
purposes and asphalts. The refiners
contend that out of the money received
for handling gasoline they are able to
pay large part of their expenses for
overhead end plant in producing the
by products. If the prices Of gasoline
are interfered with, then what effect
will it have on the costs of producing
the other commodities derived from
crude Gil? This is a serious question
To- the refners, but it may also affect
thn consuming public.
The whole thing is an experiment
forced on the Government by a situa-
ton that has been drifting from bad to
worse. In a sense. 1t is price fixing. but
this is not forbidden by the national
recovery act. since the antitrust laws
may be suspended when codes are
adopted On the other hand. the re-
covery act insists there must not be
''monopolistic practices or monopoly"
Will the oil industry become monopoly
under the new code? With the Govern
ment acting as guide and partner, it
Is considered improbable that any acts
Of the oil companies would ever be ad-
judged illegal. and since the Govern
ment itself would have to do the prose-
cutting. 1t is doubtful whether any puni-
tive suits would be introduced
Court Test Inevitable.
There is always the chance of some
lawsuit based on the ground that the
code discriminates a mans business.
This. however. Is not likely to raise seri-
GUS issues at this time. Ultimately there
must be a court test. For the time be-
ing the psychology Of go-ahead-and-
cooperate is the dominant note Of all
elements in the oil industry The ex-
pertinent In price maintenance and
price ratio fixing meanwhile will be
watched minutely, and it Is doubtful
whether for some time to come any
other industry will enjoy similar privi-
leges. The Government will prefer to
await the outcome Of this its first real
excursion into the indefinite realm Of
price-f1xing.
Like imitation. however the benefited
elements will cry for more Hence the
demand for more price arrangements
in the by-products Of oil will go on un-
diminished
(Copvright 1897