HOME HEATING OIL cost, a year ago, about 49 cents a gallon in the Washington area. Today the average price is up to 83 cents.
Who got the 34-cent increase?
OPEC comes first to mind. But the figures suggest that the foreign producers got only about 10 cents of it. The domestic producers, still under price controls, got less than 2 cents. The remaining 22 cents went to the companies that transport, refine, store and distribute the oil. There has been a gigantic widening of operating margins all along the complex system that gets the oil to your furnace.
The figures come from our own rough and preliminary survey. They are averages, and do not fairly represent the widely varying circumstances of individual companies. But to return to the missing 22 cents per gallon, it seems that about 12 cents of it goes to that part of the system that refines the oil and sells it, at wholesale prices, from terminals in the Washington-Baltimore area.The gross margin on this operation, a year ago, averaged less than 10 cents. At present it is over 20 cents.
The remaining 10 cents a gallon of the total increase has gone to the smaller local companies that pick up the refined heating oil at the terminals and deliver it to the tanks in people's basements. Their gross margins, about 10 cents a gallon a year ago, now seem to be running about twice that much.
You will note that these figures are not net profits. A company has to pay all its own operating costs out of the gross margin, and oil companies like everyone else are struggling with inflation. Local distributors point out that some of the refiners have also imposed a further increase on them by tightening the terms of credit. A few of these companies, caught in unusual situations, may well be suffering reduced net profits. But it is hard to believe that, for the industry as a whole, a 13-percent inflation rate justifies doubling the gross operating margins.
While inflation is part of the explanation of this drastic price rise, the other part is diminished competition. Everybody who uses fuel oil remembers the gasoline lines last spring. Nobody wants to shop around and risk losing his place on his supplier's list of regular customers. The Carter administration keeps saying that there will be plenty of oil for the winter. But most other people suspect that more depends on the Iranian revolution and the weather than on the White House.
Even at 83 cents a gallon, heating oil prices are still rising. Margins are still spreading. The oil industry is inviting precisely the public response it most fears and detests. It is inviting the reimposition of controls on heating oil, and the regulation of refineries as public utilities. That would probably work very badly, but merely to say as much doesn't mean it won't happen. While the weather is still warm, the oil companies, large and small, might want to reflect briefly on the fate of other industries, like the railroads, that tried to push their customers too hard.