THE OIL SHORTAGE

How to Get Bad Publicity

THE U.S. was in the grip last week of an oil-production shortage that kept it from shipping enough oil to Europe and reduced domestic reserves to dangerously low levels. On its post-Suez promise to deliver 500,000 bbls. of crude oil daily to Europe, the U.S. has thus far made good on an average of less than 300,000 bbls. daily. To make the situation worse, much of the oil has come from U.S. reserve stocks, which have dropped from 284 million bbls. to 254 million bbls. since the beginning of November, and are now below the minimum set by the Interior Department as needed for national security. The air from London to Texas crackled with recriminations: everybody blamed everybody else.

Everyone hopes that the current troubles add up only to a short-range problem. Barring political complications, the Suez Canal should be open for shallow-draft tanker traffic by March 1, will probably open completely by mid-May. Oilmen are also hopeful that the sabotaged Iraq Petroleum Co. pipeline traversing Syria from Iraq to the Mediterranean can soon handle 40% of its former capacity. But it may still take months before the flow of oil is back to normal. Even if the canal clearance proceeds on schedule--and the Egyptians do not decide to keep it closed after it is cleared--tanker operators estimate that it will take five months before enough tankers can be shifted to Suez routes to get Europe's oil supplies flowing as usual. In that time the current oil shortage may well get worse.

The biggest share of the blame has fallen on the state regulatory commissions, particularly the Texas Railroad Commission, which controls 45% of all U.S. oil production and so far has refused to boost its allowables appreciably. The independent oilmen who dominate the Texas commission have created an artificial shortage of oil and used that shortage to hike the price of crude oil 12% to a record average of $3.25 per bbl.

In defense, independent oilmen argue that the essential economy of the industry makes it difficult for them to increase production. They declare that any production increase would only benefit major producers with big wells hooked into pipelines; small producers would still have to truck their oil to market at the high cost of 35-c- per bbl. Furthermore, independents fear that if they hike production to ease a short-term crisis in Europe, they will be stuck with a big surplus once the crisis is past. The problem could be solved easily, say the independents, if the big companies would divert their heavy oil imports from Venezuela to Europe instead of using them to supply their East Coast refineries. So far, the major companies have refused. They are dead set against rerouting their imports until they have a firm guarantee that domestic industry will make up the difference fast enough to supply their U.S. markets.

Another solution, say the independents, would be for Europe to import U.S. refined products instead of crude oil. They point out, for example, that U.S. gasoline stocks are at a record 193 million bbls. But European nations have good reasons for not wanting refined products. Gasoline is the least critical item in their oil inventories, and the importation of high-cost refined oil would not only reduce their dollar balances but force layoffs in their own refineries.

In the long run the biggest loser may well be the U.S. oil industry. There is little doubt that independent oilmen can make a good case for a price increase. Costs have jumped 50% since 1947, while crude-oil prices have increased only 21%. But by taking advantage of an international emergency to ram through a price boost, the industry runs the risk of earning a Shylock reputation in the eyes of the world. It is something that thoughtful oilmen are beginning to realize--and rue. Earlier this year it looked as if the industry's long-sought natural-gas bill to ease federal regulation would get through Congress. Passage is now doubtful. Moreover, oilmen rated themselves a good chance of winning legislation to cut back imports of Venezuelan crude. But this week Congress was already investigating oil prices, and oilmen grimly admitted that they themselves had provided plenty of ammunition against protecting domestic producers from foreign competition.

Worst of all, there is grave doubt that the industry will even be able to make its recent price rise stick. Some companies have already started cutting the price of gasoline. And when Suez is in full flow, the price of crude oil itself may be forced back down, thus leaving the independents with nothing gained except ill will. Said one Texan, bluntly putting his finger on a basic problem of the U.S. oil industry: "We always have the worst public relations in the world. Ever since John D. Rockefeller and Teapot Dome, we've always been s.o.b.'s to the public." As of last week, the industry seemed to be doing little to improve its reputation.

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