Collusion or Costs?

INDUSTRY Collusion or Costs? When major oil companies raised the price of crude oil 25-c- a bbl. last month, and retail price increases for gasoline and home-heating oils followed. New Jersey's Republican Charles A. Wolverton, chairman of the House Committee oh Interstate & Foreign Commerce, let out a yell.

What, he asked, could justify the price hikes at a time of "sustained high earnings" and when "stringent reduction of oil imports is being urged" because of a surplus and cutback in U.S. production? Since all the companies increased prices at almost the same time, he also suspected "collusion." called for an investigation.

The day after the hearings opened fortnight ago, the majors wiped out much of the increase in heating-oil prices. Last week Atlantic Refining Co. and Esso Standard Oil took off the rest of the recent heating-oil price rise in states where competition was hottest, and the others were expected to do the same. Nevertheless. Hines H. Baker, president of the Humble Oil & Refining Co., stepped before the committee to make a case for the raise.

There has been no general increase in crude-oil prices since December 1947, said Baker, and prices in 1952 averaged slightly less than they did in 1948. Costs of labor have gone up 31%, and machinery costs and state production taxes have also risen. But the principal item of higher expense has been in "exploration." Humble Oil spent $43,065,000 on digging dry holes last year, 62% more than in 1948. The average cost per completed well was $106,500, up 29% from 1948. As for excess supplies, said Baker, the Defense and Interior Departments have repeatedly asked for a domestic reserve capacity of 1,000,000 bbls. a day, "as a matter of national security," and carrying such reserve capacity is expensive. Perhaps the oilmen's best argument for the raise was that, despite the enormous expansion in refining capacity, net profits of the industry have gone up only 3.3% since 1948.

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