Oil Easier, Gas Tighter

At long last, some of the nation's energy problems showed some improvement--but others were getting worse. Although lines of motorists at service stations in parts of the U.S. provided highly visible evidence of a deepening shortage of gasoline last week, the more serious scarcity of home-heating fuel appeared to be ended, at least for the time being. An unusually warm winter, combined with dedicated conservation by Americans, has cut demand for heating fuel by about 11% below previous forecasts. Heating-fuel storage tanks are brimming over, even in the Northeast, which has been the most severely afflicted region. Best of all, the first signs appeared that the Arab oil embargo on the U.S. might be lifted.

Ripple Effect. Since the Arabs decided last month to sell France, Britain and Belgium all the oil they need, supplies in Europe have increased and prices for heating oil have declined sharply. In a ripple effect, U.S. heating-oil prices by mid-February may go down a penny or more per gallon.

The improved outlook prodded the Senate to scuttle temporarily the Emergency Energy Act, which would have given President Nixon authority to ration gasoline. An odd political alliance--Democratic liberals, Republican conservatives and ardent environmentalists--voted decisively to send the bill back to a House-Senate conference committee. This week the conference committee will consider several possible revisions to the bill, including the substitution of a plan to roll back some domestic oil prices for its controversial provision to curb windfall profits.

That provision was opposed not only by oil-state Senators like Louisiana's Russell Long but also by many liberals who considered the plan unworkable. The environmentalists, led by Wisconsin Democrat Gay lord Nelson, were aghast at another provision that would have delayed until 1979 the imposition of "clean air" standards for factories and power plants that are shifting from oil to coal. All sides felt freer to drop or at least delay the bill because of the easing of oil supplies. Said Nelson: "We are not in an emergency situation right now."

This could lead some Americans to believe that the energy crisis is over, which it most assuredly is not. One symptom: layoffs resulting from the crisis are spreading. In January the nation's unemployment rate rose from 4.8% to 5.2%. The Bureau of Labor Statistics attributed a "substantial" proportion of new joblessness to shortages of fuel and power. More ominously, Federal Energy Chief William Simon warned last week that the home-heating-oil situation is still "critical," although stocks stand at 185 million bbl., v. 137 million bbl. at the same time last year, when stocks were abnormally low. The big danger: a sudden cold snap could quickly deplete inventories.

Because U.S. refiners are cranking out maximum amounts of home-heating fuel, production of gasoline has lagged. U.S. refineries are designed so that when the output of one product rises, that of the other declines. The gasoline shortage is severe, and it could get worse, particularly along the Eastern seaboard from Maine to Maryland and in Arizona, Oregon and Hawaii. The Aloha State imposed a mandatory rationing plan last week. Drivers whose license plates end in even numbers will be able to buy gasoline only on even-numbered dates, and drivers with odd numbers on odd dates. Gasoline is also becoming more expensive. Major-brand gasoline is now selling in big cities for an average of 45.90, compared with 40.40 last November.

Penny Boost. Simon is considering several methods of encouraging refiners to increase gasoline output. One way would be simply to order them to crank out more gasoline and cut back on production of distillates like heating oil and diesel fuel, but the Federal Energy Office's authority to do that is unclear. A more likely method would be to allow a penny per gallon increase in the price of gasoline while subtracting the same amount from distillate prices--the reverse of what the Government did last year to boost fuel-oil production. A third method would be to do nothing. Refiners usually switch from distillates to gasoline in the late winter to build up inventories for the summer driving season.

Despite President Nixon's vehement philosophical opposition to rationing, the FEO is also preparing for just such a program. It will be ready in early March, but could not go into effect until Congress gives the Administration the necessary legal authority. Last week Simon's deputy John C. Sawhill displayed the first of 2.9 billion ration coupons that rolled off the presses at the Bureau of Engraving and Printing. The black and white coupons bear a likeness of George Washington and look a bit like miniature dollar bills.

Whether the coupons will ever be used depends largely on when the Arabs lift the embargo and whether they also increase production. In his State of the Union speech the President declared that he had been "assured through my personal contacts with friendly leaders in the Middle Eastern area that an urgent meeting will be called in the immediate future to discuss the lifting of the oil embargo." Before he spoke, Nixon's remarks were reviewed by Saudi Arabia's King Faisal and Egypt's President Anwar Sadat, the two most influential Arab leaders. Both informed the President that they would press for a quick end to the embargo at the next Arab oil ministers meeting, scheduled for Feb. 14 in Tripoli. But a lifting of the boycott will be strongly opposed by Libya, Iraq and Kuwait. The main problem is that the disengagement of Israeli and Egyptian forces along the Suez front falls far short of fulfilling the conditions laid down by the Arabs on Dec. 8. They then declared that oil shipments to the U.S. would not resume until the Israelis agreed to pull back to their 1967 borders on a clear timetable guaranteed by the U.S.

Plan for Sharing. A different split threatens the outcome of a meeting of oil-consuming nations that Nixon will convene in Washington on Feb. 11. The purpose is to formulate a plan for sharing scarce energy supplies among nations. That may well be impossible because Japan and several European nations, including Britain and France, are scrambling to ensure their own supplies of oil with no thought of other countries' problems. France hopes to sign an agreement with Saudi Arabia under which the French will receive 5.6 billion bbl. of oil over the next two decades in exchange for French products. In Japan, the government extended a royal welcome to two barnstorming Arab oil ministers, Saudi Arabia's Sheik Ahmed Zaki Yamani and Algeria's Belaid Abdessalam. They were granted an unusual 30-minute audience with Emperor Hirohito. Like a king granting gifts to supplicants, Yamani declared that "Japan is in the No. 1 position both to help us and to be the recipient of Saudi Arabian oil on a long term basis." Minister of International Trade and Industry Yasuhiro Nakasone, on a recent Middle East swing, closed deals that could give $1.5 billion in Japanese credits to Arab states in exchange for guaranteed oil shipments.

The Arabs are encouraging these bilateral pacts because they want to take advantage of international disarray while they can. Since the production cutbacks began in October, other countries have stepped up their output. Indonesia's daily production has gone from 1.3 million bbl. in September to 1.4 million bbl.; Nigeria's from 2.1 million bbl. to 2.2 million bbl.; Iran's from 5.8 million bbl. to 6 million bbl. If these and other production increases continue and demand remains checked, a return to pre-boycott levels of production by the Arab states could lead to a temporary world oversupply of oil--and falling prices.

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