The Federal Energy Administration yesterday extended for three months the freeze it imposed in June on domestic oil prices and rolled back by 20 cents the maximum price producers can charge for a barrel of domestic oil.
The roolback reduces from $11.60 to $11.40 the price that domestic oil producers can ask for what is called "new" oil, that produced from domestic well drilled after 1972 and oil produced from so-called "stripper" wells that turn out fewer than 10 barrels a day.
The extension of the freeze together with the rollback will not lower the pump price of gasoline in the United States but it will serve to relieve some of the upward pressure being exerted on gasoline and heating oil prices by the increase put through last month by the oil exporting countries.
About 44 per cent of the 8.1 million barrels of oil produced in the United States every day fall in to the "new oil" category but almost one-third of it is in the stripper oil class and not subject to price controls.
Stripper oil since June has been allowed to sell at the world oil price, which currently is somewhere between $12 and $12.60 a barrel, depending on which country is selling it. The reason stripper oil was put into a separate category was to encourage domestic oil producers to keep the small wells producing.
An estimated 56 per cent of U.S. oil production is what is called "old oil," produced by wells found and drilled before 1972. The price for old oil is $5.20 a barrel. The extension of the freeze will continue the $5.20 a barrel. The extension of the freeze will continue the $5.20 price for old oil.
The FEA is extending the price freeze and rolling back new oil prices because oil prices in the United States have been running ahead of their legal schedule of allowable increases.
Under the Energy Policyt and Conservation Act passed by Congress in June, FEA must control the domestic price of crude oil within limits the began at $7.66 a barrel last February, with allowable increases of about six cents a month on a 39-month schedule.
The $7.66 a barrel is the composite price of "new" and "old" oil. It referred only to domestic oil, not to foreign oil whose imports into the United States have averaged between 5 million and 6 million barrels a day.
The composite price of domestic oil currently should be about $8.18 a barrel under the scheduled increases, but instead is about $8.30 a barrel. This is why the FEA rolled back new oil prices and froze all crude oil prices for another three months.