The Washington times., 1934-07-06

tempt Is being RI
made to main. ~
tain artificially ~
high mark cts Lewis hane1
for crude oil and for gasoline and
fuel oils. Because the Oil inter-
ests. with the backing of the Gov
ernment, are bucking the law OF
supply and demand.
This condition always causes
''bootlegging."
And a point to be emphasized
Is that the attempt is being made
to maintain an artificial adjust
Ylent among oil prices. For
example, they are trying to main
tain service station prices 1or
gasoline out of line with refinery
prices.
am inclined to think that the
root of the almost chronic trouble
IN the oil industry lies in the long
continued effort to adjust pro
duction to a so-called market
demand" They figure a certain
quantity of gasoline as being the
"'market demand" regardless OF
the price. They seem to tninK
that the price makes no differ
ence, and that as much will be
consumed at one price as another.
That is all wrong. The way
to euualize supply and demand
is to- let the price be whatever
Is reuuired. The real market
demand will rise when the price
is low.
To hold prices up, and then
attempt to restrict production
and "prOrate" the output
among all producers, is sure to
bring "hot Oil'' and bOOtlegglng.
But more Immediately, there is
trouble in the oil industry because
of the almost constant attempt to
keep prices up for the big fellows,
and at the same time to freeze
out the little ones.
The little "independent" refiner
of petroleum has to buy most OF
his crude oil. He actually has 10
nav the "posted price" for his
oil. Practically all of the larger
companies, however, are "1nte-
grated" which means that they
produce their own crude oil as
well as refine it. To them, the
posted price is merely a nominal
charge, and their producing sub
sidiaries profit by high crude Gil
prices.
Again, the big fellows are the
ones who import foreign crude
oil and who carry large stocks
of crude in storage tanks. They
are interested in Cd bringing in
oil from South American, subsl-
diaries, and (2) drawing on their
stored oil.
But the little Independents do
neither of these things.
Now the allowable" production
set for the industry is based on
domestic production only, and
does not include imports and
Withdrawals from storage. 1t
therefore tends to restrict the
operations of the independent re-
timers more than the big ones.
: It tends to bottle up the little,
. nonintegrated companies.
They want cheap domestic
crude oil, but under the restric-
tions they cannot get what we
may call 'Blue-Eagle crude" in
sufficient quantity or at lew
enough prices to enable them to
produce and sell their gasoline
in the wholesale market. And
many of them do not maintain
service stations to get the high
retail prices.
So we find them seeking cheap
shot OIL" and cutting prices in
the refinery and wholesale mar
ketS for gasoline. This eventually
weakens the retail or service sta.
ton market.
It seems to me that we will
have to do one of two things: Cd
either let the law of supply and
demand work and clean out any
excess production and refinery
capacity by low prices, or ~ let
the Federal Government run the
oil industry, overriding the States
and rigidly controlling production
and prices.
Oil is q valuable asset and
eventually will increase in
value. Under present conditions,
however, the oil industry is not
out Of the woods. If oil COM
panies can't compete, they must
expect Tugwell'S "SOcial man.
agement" to get them.