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Deluding the public about oil

For well over a year now, ever since US motorists encountered severe shortages of gasoline in the spring of 1979, the American oil industry has been the target of allegations that the industry, and more particularly the major international oil companies, conspired to create shortages and drive up oil prices after the suspension of oil exports from Iran.

These allegations continue to be echoed even though long since proven false in a plethora of hearings and forums, the most recent exoneration coming in two reports issued by the US Department of Justice and the Department of Energy. After a year's investigation, each department reported there was no credible evidence that gasoline shortages resulted from collusive conduct by oil companies.

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But this lack of evidence has done little to deter those revisionists of history who persist in irresponsible accusations of worldwide criminal conspiracies and collusions.

Such persistence justifies another look at both the facts and the critics themselves. The facts are on record; there is no mystery about what occurred. Here is the chronology:

* As 1977 ended, the free world's inventories of oil were at an unprecedented high -- an accumulation that had been built up for a number of reasons, not least a fear that OPEC prices might be raised again at the beginning of 1978.

* The drawdown of inventories and the reduction of OPEC crude production that occurred during the first half of 1978 were neither ominous nor mysterious.Rather, they were reasonable and normal reactions to plentiful supplies.

North Sea production was increasing. Alaskan crude oil supply was increasing , too. Spot market prices were soft, and the new year 1978 had not brought the anticipated OPEC price increase. The tension that had pushed inventories so high began to ebb, with the inevitable result that OPEC production levels eased back and inventories came down. Consumers and oil companies alike felt comfortable about future supplies. Demand for gasoline rose past the forecast levels and remained high.

* Then, in the fall of 1978, civil disturbances erupted and the oil workers went on strike in Iran, which had been exporting between five and six million barrels of oil per day to the free world. As turmoil increased, oil production declined sharply, and on Dec. 22, 1978, crude oil exports from Iran stopped completely.

This sudden loss of some 10 percent in free world oil supply shocked the world. Before the first disruption in oil exports from Iran, free world inventories had been near normal levels.But once Iranian production began toppling, it became extremely difficult to rebuild them, for the atmosphere of impending shortages made crude oil supplies more precarious and more valuable.

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Traders began to compete for oil, and prices in the spot market started to climb steadily upward and eventually reached $40 per barrel in late 1979. Anxiety fed on anxiety: No one knew how long Iranian production would be lost; nor whether other producing countries would make up the shortage; and if they did, how long they might be willing to do so, and at what price.

* In the first quarter of 1979, crude oil production available to the free world fell to 50.6 million barrels a day, a drop of 1.8 million barrels a day from the levels of the fourth quarter of 1978.

Thus, the stage was set for the crisis that ensued: a worldwide production shortfall of almost two million barrels per day; a worldwide scramble for secure oil supplies that led to steadily rising prices in the spot market; US government policy that discouraged the major American oil companies from entering the spot market in search of more supply; President Carter's early initiative to establish a heating oil inventory-building program that required reductions in gasoline production during the prime driving season; and all of this complicated further by federal regulations for allocating gasoline supplies that were based on outdated demand patterns and resulted in shortages and long gasoline lines in certain areas of the country, particularly metropolitan areas.

Our critics now argue that since total free- world crude oil production was higher in first- quarter 1979 than it had been in first-quarter 1978, there really wasn't any shortage at all. This argument intentionally ignores the fact that demand had risen substantially (to 55.7 million barrels per day, the highest quarterly consumption in history), and that crude oil production had been unusually low (about 50 million barrels per day) in early 1978. It also ignores the vast accumulation of evidence demonstrating that the comparatively higher volume produced one year later was still, quite obviously, not enough.

Despite the clear record of history, the oil industry is besieged by a small cabal of critics who are determined to rewrite what happened to make it conform to their theories and not to the facts, insisting -- against all the evidence -- that there must have been a worldwide conspiracy among the major international oil companies to inflate the price of oil.

There is nothing puzzling about their goal, which is to break up the oil industry or bring it even further under government control. What is puzzling is the ready market they find for their discredited theories, which are published or broadcast by the communications media as though they do no great harm to the status and performance of corporations that are critically important to this nation's economic health and industrial strength.

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