Page images
PDF
EPUB

I know that Mr. Howat did not infer anything improper about us being a lobby. I know him well enough to know that he did not mean that, and I am sure that he would say so himself.

Petroleum prices are not within the purview, Mr. Chairman, of our committee. They have nothing to do with price.

But Mr. Howat brought this matter up at our other meeting, and I came across a statement which w prepared by the Independent Petroleum Association of America, having to do with the basic facts concerning the petroleum prices, and I think it would be of very real interest to the committee at this point, and it will just take a minute to give it to you. [Reading:]

Despite the increases that have taken place since the end of the war, petroleum prices remain relatively low as compared with other commodities. Any unbiased study of the facts will show that the American consumer is still paying subnormal prices for oil products.

In considering petroleum prices, it is important to review the wartime record as well as the changes since the war. The prices of most other goods rose substantially during the war years and the postwar period saw further large increases. Petroleum prices, on the other hand, were at a depressed level at the beginning of the war and were frozen at this improper base by the arbitrary and unrealistic action of the Price Administration. As a result, petroleum prices steadily fell further behind the general price level from 1939 up to the removal of price restrictions in the summer of 1946. When prices again became free to react normally to the laws of supply and demand, the petroleum industry found itself in an even more depressed position than prior to the war.

By using the index numbers it is possible to compare the prices of different commodities. In the attached chart, indexes for two groups of prices are shown.

I want to make that a part of the record, taken from the Bureau of Labor Statistics.

(The table is as follows:)

Detailed figures from the Bureau of Labor Statistics on wholesale prices

[blocks in formation]

Mr. KELLER (reading):

For wholesale prices, as so-called primary markets, the Government uses the year 1926 as a base period and prices are calculated as a percentage of the average during that year. For consumer prices, which reflect the cost of living for moderate-income families, the Government base period is the average for the years 1935–39. Because of the difference in these base periods, therefore, coli

sumer price indexes shown on the chart should not be compared directly with wholesale figures.

In the wholesale markets, the chart shows the large price increases for most goods, both during and after the war. Farm products rose from 61 percent of the 1926 base price in August 1939 just prior to the war in Europe to 95 percent when the United States entered the war; a further increase to 127 on VJ-day; and stood at 184 on March 15, 1947. For all commodities, the price index increased from 75 to 106 during the war period and to 148 by the middle of March. In contrast, the average price of crude petroleum was at the depressed level of 54 in 1939 prior to the war and had increased to only 64 percent by VJ-day-all of the increase taking place prior to our entrance into the war. No general increase in crude prices was permitted from 1941 to April 1946.

Not a penny was allowed, as you well know. Adjustments in crude prices since April of last year brought the index up to 38 percent of the 1926 base on March 15, 1947. More recent price changes in California make the average price of crude oil in the United States equal to approximately $1.88 per barrel, or an index of 100 as compared with 1926.

An increase of almost 50 percent would be needed before crude prices were on a parity with the general price index of all commodities. This would require an average price of approximately $2.80 per barrel for crude petroleum.

Crude oil is one of the items which is included in the Bureau of Labor Statisties in its fuel and lighting materials which classification is reported at 98.3 as of March 15, 1947. It is obvious that petroleum and petroleum product prices have not advanced in relation to those of other commodities. Petroleum prices are still substantially below average for other commodities. Hourly wages have more than doubled since 1926 yet crude oil with all the recent advances has barely reached the 1926 level while petroleum products, particularly gasoline, are substantially below the 1926 level.

The lower section of the chart compares gasoline prices with the principal items of consumer prices that enter into the cost of living. It will be noted that the average price index of all consumer items was equal to 99 percent of the 1935–39 base period when the war began in Europe. This index rose to 111 by December 1941 and to 129 by VJ-day. Since the war, consumer prices have risen to 153 early in 1947.

In sharp contrast to these increases in cost of living, the retail price of gasoline (excluding sales taxes) increased from 96 to 102 during the war and, loy the middle of March of this year, was only 116 percent of the 1935–39 level. The average gasoline price, excluding taxes, at the service stations was approximately 16.1 cents per gallon on March 15 of this year. An increase of about 5 cents per gallon would be needed to bring this price in line with all other items in the consumers' budget.

In connection with the price of petroleum products, such as gasoline, it is important to remember what a small part they represent in the total cost of Jiving. An increase of 1 cent in the price of gasoline, for example, would have an effect of less than one-tenth of 1 percent on the cost of living index prepared by the United States Department of Labor.

In view of the subnormal level of petroleum prices as compared with prices of other goods and the fortunate position of the consumer in purchasing oil products, any criticism that present prices in the petroleum industry are excessive is entirely unwarranted.

I have here also a chart from the “Wholesale and consumer price index" which was also prepared by the Independent Petroleum Association of America, and I would like to offer that, with the chairman's permission, for the record, and to say that the price increase has been an average of 15 percent against the very reasonable background which I have indicated here, and I do not think you could take any other commodity which you or I use and say that the price has increased only that amount. It has been an extremely moderate increase.

[blocks in formation]
[graphic]
[ocr errors]
[ocr errors]
[blocks in formation]
[blocks in formation]

CONSUMER INDEXES

NOT

COMPARABLE

WITH

WHOLESALE.

DIFFERENT GOV'T.

BASE

PERIODS

WHOLESALE PRICE INDEXES FROM U.S. BURE AU OF LABOR STATISTICS EXCEPT CRUDE PETROLEUM WHICH IS AVERAGE
PRICE OF CRUDE AT THE WELL CALCULATED FROM POSTED PRICES BY I.P.A.A.. ALL PRIGES AS OF MARCH 15, 1947.

CONSUMER PRICE INDEXES FROM U.9. BUREAU OF LABOR STATISTICS EXCEPT GASOLINE WHICH IS AVERAGE SERVICE
STATION PRICE (EX. TAX) IN 60 CITIES. GASOLINE PRICE AS OF MARCH 15, 1947 OTHER CONSUMER PRICES AS OF
JANUARY 15, 1947 THE LATEST DATE FOR WHICH THIS INFORMATION IS AVAILABLE.
PREPARED BY

THE INDEPENDENT PETROLEUM ASSOCIATION OF AMERICA MARCH 24, 1947

FOOD

HOUSE FURNISHINGS

CLOTHING

RENT

TOTAL ALL

ITEMS

GASOLINE

NOTE:

SOURCE OF DATA:

[graphic]
[ocr errors]
[ocr errors]

Mr. BATES. You know, there is one thing in connection with this gasoline price and petroleum products increase that I just do not understand; that is the disposition of these pipe lines.

I had a good deal to do with it, and had a good deal to say regarding the original installation of those pipe lines. And here we have recently disposed of those pipe lines for natural-gas purposes. When it was made clear to us that we could transport these petroleum products, crude oil at the rate of 18 cents a barrel, and lighter type oil at probably 16 or 17 cents a barrel, and we are paying 40 cents a barrel to transport the same petroleum products by tank ship from the Gulf Coast to the eastern seaboard, and according to the basis of computation, that I have made for myself, on the basis of information I received from War Shipping, of the cost of transporting this oil on the basis of 500,000 barrels a day, we could save $125,000 a day on transportation cost alone. And multiplying that by 52 weeks a year, we could save $37,000,000.

Now, I do not know whether I should draw you into this thing or not, but I naturally would want to ask the question of somebody, why the petroleum industry is charging 40 cents for tanker transportation when they could acquire the pipe lines with proper capitalization and write-offs, amortization, and produce oil here in the eastern seaboard for one-half the cost of transportation that the consumers here must pay now.

You are familiar with that, I presume?

Mr. KELLER. Yes, generally; but I am sorry I am not prepared to give you a detailed answer. But I do not believe you have the proper cost of the transportation per barrel of crude.

Mr. BATES. The only information I have is directly from the War Shipping Administration, who certainly have the correct figures.

Mr. KELLER. Well, if the Chairman would like, I would be glad, in my own little way, to get you what information I could on that.

Mr. Bates. I wrote an article for the Committee on Interstate and Foreign Commerce on this particular project, because I was very much disturbed at the Government getting such a small price. They were not giving them away, but they got a good price; but certainly when we are thinking about drafting legislation widening channels for the purpose of aiding seagoing vessels, particularly tankers in and out of oil centers to the consuming centers, for the purpose of reducing. we are told, the consumer cost, by that economic justification of approving an expenditure of millions of dollars, then throwing away what we have spent, when we have an opportunity to save thirty-odd millions of dollars a year in transporting through the pipe lines, that is a very peculiar situation.

Mr. KELLER. I would like to say this on that point, Mr. Chairman. that the lines, the Big Inch and the Little Big Inch, were both offered twice on public bids. The first thing the War Assets Administrator took the position that he could dispose of them only for petroleum service, and then subsequently changed his position and submitted a supplemental report to Congress; and they were thrown open for open bidding, and all of the economists, the best economists in the industry, felt that the use which was made of the lines in the final disposition of them was the most economic for the lines, having in mind the surplus tanker facilities and the pattern of transportation which had been established under that system.

« PreviousContinue »