Target for Criticism

Almost everyone was mad at the U.S. oil industry last week for its failure to supply Europe with promised oil and its sudden increase in the price of domestic oil products. Even President Eisenhower at his press conference took pointed notice of the industry's shortfall (see NATIONAL AFFAIRS).

Before a Senate subcommittee investigating the 12% oil price increase, Florida Power & Light Co.'s President McGregor Smith testified that the price rise was the "greatest economic hurricane" the state had ever suffered. Florida Power alone, he said, will have to pay $6,000,000 more for fuel annually and must pass the boost on to its 600,000 customers; unless prices are cut, Congress should pass emergency price controls.

The Justice Department, sensing possible violation of the Sherman and Clayton antitrust laws, announced that it had asked for a grand jury investigation of the industry's production and sales arrangements. Though Justice had been looking into monopoly and price-fixing for months, the latest price increase had undoubtedly helped persuade its lawyers that the time had come to call major U.S. oil companies to the witness stand.

Bad to Worse. Oddly enough, Europe was less upset than the U.S. itself over the industry's laggard performance. Though oil stocks dwindled daily, Britain and the Continent were cheered by prospects of warmer weather and an early reopening of the Suez Canal. But as matters stood last week, the oil lift across the Atlantic seemed to be going from bad to worse. In seven days the U.S. averaged shipments of only 454,000 bbl. of petroleum products to Europe, of which barely 183,000 bbl. daily were crude oil, far below the figure of 500,000 bbl. daily the U.S. had promised.

Among oilmen, everyone blamed everyone else. Still fighting its brisk intramural war, the Texas Railroad Commission, which controls 45% of all U.S. production and grimly guards the interests of small independent producers, blamed the major companies for the industry's troubles. Texas independents called angrily for major refiners to 1) cut back their imports of Venezuelan crude oil, thus making that oil available for direct shipment abroad, and 2) reduce refinery runs, to make even more crude available for shipment abroad. Furthermore, said the independents, refiners should change their entire historic pattern of refining oil: they should crack less gasoline, which Europe does not need, instead produce more relatively low-grade fuel and heating oil, which Europe does need.

Supply & Demand. Amidst the furor, up stepped Hines Baker, president of Humble Oil Refining Co., biggest U.S. domestic producer (300,000 bbl. daily), to make his case for the industry. Humble had supplied almost 50% of all the oil shipped to Europe in November and December--and it was also Humble that had set the pattern for the recent industrywide price rise by boosting the price it pays well-operators for crude oil. Said President Baker: "Once the Suez was closed, Europe was bound to have a shortage. In a situation like this, no one man, no one company, no one conservation agency," could be held solely responsible.

Actually, said Baker, his company had supplied all the oil it could buy from well-owners. What caused the price rise was largely the big companies' attempts to find more oil for shipment. Since the Texas Railroad Commission had refused to increase production by any appreciable amount, independents had hung back, keeping their oil in the ground or in storage tanks, well knowing that prices would inevitably go up. Thus, said Baker, the majors were forced to boost the price in hopes of shaking loose some of the crude stocks held in independents' inventories.

Help on the Way. In any event, Humble and most other companies were taking emergency action to help speed the flow of crude oil to Europe. Humble cut back refinery runs at its big Baytown, Texas plant by 21,000 bbl. daily to 245,000 bbl., thus released more crude for shipment abroad. Shell, Texaco, Sohio, Cities Service, Gulf, Socony-Mobile, Esso and Sinclair were doing the same sort of thing. In addition, many big refiners also announced that they were revising refinery operations so that they would be able to make less high-octane gas and more fuel and heating oils.

Even so, President Baker made it clear that the twin moves were only emergency measures, and that they entailed costly sacrifices for the industry. For years, oilmen have poured billions into expansion and research to crack an ever-increasing flow of the highest quality gasoline and other products from their crude oil. Now, by cutting back operations or by shifting to lower-grade products, they were deliberately committing themselves to an inefficient operation. Snapped Baker: "To ask the industry to drastically shift yields is to ask it to do what is counter to good business judgment." The best way, said Baker, to get fuel oil to Europe is for the Texas Commission to increase U.S. production.

At week's end there were indications that that would happen at next week's meeting of the Texas Railroad Commission, when its 30-day production limits are set. Texas' Governor Price Daniel wired President Eisenhower: "Texas can and will produce more oil to meet the present emergency at the earliest possible moment that this can be done on a ratable basis and without waste."

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