THE RETAIL price of a gallon of home heating oil here in the Washington area now averages $1.03. That's 17 cents more than a year ago. But this year's increase is being divided up differently among the producers, refiners and retailers. It's an illuminating indication of the way things have been going in the oil industry.
Two years ago, heating oil cost 49 cents a gallon. Then came the Iranian revolution and, in this country, the gasoline lines. Retail prices of all oil products soared. By this time last year, heating oil was 86 cents a gallon. Part, but only part, of the reason was the higher cost of foreign oil. More than half of the increase represented enormously expanded margins for all of the domestic businesses that refine oil, transport it and sell it to the consumer.
The gasoline lines had created an atmosphere of scarcity. Many householders feared leaving their customary heating oil dealers to shop around. It was totally a sellers' market. Refiners, in the year ending last September, more than doubled their gross margins. That isn't all profit, because the margin has to cover the refiner's costs of operation and those costs were certainly rising. But they were hardly rising fast enough to justify last September's margins.
Then, beginning last fall, heating oil sales dropped. Some families turned to natural gas. Some installed wood stoves. Some simply kept their houses cooler. As the oil industry began to lose customers, it stopped widening margins. Our own rough survey of current prices, and estimates of crude oil costs, suggests that over the past year the margins have not increased at all.
Of the past year's 17-cent increase, only about 5 cents, surprisingly, went to the foreign producers. The other 12 cents went to the companies that are drilling and pumping oil in this country. The price of foreign oil has continued to go up rapidly over the past year, but this country has been cutting down its oil imports. Meanwhile, domestic oil prices have risen steadily, as the federal government gradually removes price controls.
All of these trends appear to be very likely to continue through the winter ahead. The prices of crude oil, both domestic and foreign, are going to keep going up. At some point, as dealers' costs continue to rise and profits get squeezed, margins will probably begin to widen more. Customers will continue to turn to other fuels, and to improve the insulation of their houses. For some of the retail oil dealers and distributors, it looks like a bleak future of declining business. But for the country as a whole, it's exactly the right path to follow.
It would be infinitely foolish for Americans to assume that there won't be any more foreign oil crises disruptions and shut-offs. If and when the next one arrives, it will find fewer American families wholly dependent on oil for their heat -- and those who use it will need less of it. That's reassurance for the winter ahead, and a major contribution to national security.