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Susan Green

Profit System Responsible for Oil Shortage

Where Was the Oil for Home Heating?

(29 March 1948)

From Labor Action, Vol. 12 No. 13, 29 March 1948, p. 4.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

Houseowners with empty oil tanks and tenants in ice-cold apartments in one of the coldest winters on record must have wondered: how come this country, which was the arsenal for a mechanized World War II run almost entirely on oil, could not supply the winter needs of its own population? Another cause for wonderment – or indignation – was the overflowing tanks of the armed forces, contrasted with the empty tanks of civilian consumers. The Navy, which stores oil for all the armed forces, had so much that it could afford to play Santa Claus. On the East Coast it distributed nearly one and a half million barrels of oil during the crisis, under pressure from local government officials.

Of the two questions, how come the oil shortage and how come the firmed forces had enough and to spare, the latter question can be answered more quickly. Everyone knows that the armed forces have been soaking up and storing oil. But no one is permitted to know how much or whether what they have is necessary. Oliver Filat, writing in the New York Post, said: “No civilian body in or out of Congress can say what the United States military storage of oil amounts to, or whether it is justified. Furthermore there is no comparable government storage of oil to meet civilian shortages.” It is roughly estimated that military consumption is ten times that of 1938.

This alone does not account for the Navy’s generosity in releasing some of its oil for civilian use. There is a more specific reason. It seems that in April 1947 the Navy asked for bids by the oil industry for 125,000,000 barrels of oil that military officials wanted for 1948. Seeking to sell when prices might be higher and profits better, the oil corporations made no bids. From the military came a cry of “holdup” and “blackmail” and the threat to retaliate. It can be noted, by the way, that “retaliation” was long overdue, since it was this same industry which overcharged the Navy $38,500,000 on $31,000,000 worth of oil as a patriotic sacrifice during the war – not to mention other wartime steals. However, the oil industry, to forestall retaliation, offered the Navy a cagey compromise. The industry suggested a pool for supplying the Navy’s needs, if the anti-trust laws were lifted for this purpose.

Obviously, this was a plan to evade competitive bidding and to fix the price of oil for the armed forces. The Navy would not go along, even though on past occasions it must have winked an eye to make possible the gross finagling of the oil industry. This time the armed forces threatened legislation for government control of the oil industry. This brought the industry to terms. Oil began to pour into the storage tanks of the Navy. By October of 1947, 90 per cent of the total requirements for the first half of 1948 had already been delivered. Under the circumstances. the Navy could afford to be generous.

Besides bringing out once more the unscrupulous profit maneuverings of private industry, this story of the Navy largesse points up the nature of militarism. It is an institution of special privileges, not only setting itself above the needs of the population, but surrounding itself with a sacrosanct air that what it does is beyond question or reproach.

Was There a Shortage?

To get to the main theme of this piece: the oil shortage that brought such great discomfort and even sickness to so many people this winter. In the first place, not everyone agrees that there was a real oil shortage – if by shortage is meant not something artificially produced but something unavoidable. Some claim that the shortage of fuel oil this winter was definitely not necessary. Let us see what there is to this claim.

Among the reasons given by the oil industry and its apologists for the scarcity of fuel oil is that the demand was unprecedented. True, but this demand could well have been estimated. It was known to the oil industry that in 1947 a total of 820,000 new oil burners were installed in homes in this country. Buyers of these burners did so on the understanding that there would be fuel oil for them to burn. The oil industry was aware that there are many more cars and trucks on the roads. And, of course, it knew of the increased demand of the armed forces, which, by the way, uses heavy fuel oil that normally is converted into lighter fuel. So these and other demands for oil were foreseen.

Could this increased demand have been met with available facilities? First, oil was definitely not being produced to capacity. Checks along these lines showed that in East Texas thousands of wells were limited to fourteen barrels of crude a day. Many of these wells can produce 5,000 barrels each a day. How about refineries? Were they working to capacity? Information received by the Senate Small Business Committee was to the effect that independent refineries were running at only 69 per cent of capacity. Out of 108 independents, 76 claimed that they were unable to get crude oil from big producers. Here also belongs the fact that recently the War Assets Corporation disposed of several large refineries to big companies which agreed to operate at ONLY 25 TO 40 PER CENT of wartime capacity! Why the underproduction?

Oliver Pilat, whom we quote above, has referred to an unpublished memorandum made for Congressmen and government officials by Paul E. Hadlick, counsel for the Senate Small Business Committee on oil matters. The contents of the memo are really hair-raising. According to Mr. Hadlick, the oil industry has utilized interlocking state and national laws, as well as agencies in the Department of the Interior in Washington, to launch the present price gouge in fuel oil by keeping production down. The purpose of the industry is to keep production just under demand. Mr. Hadlick says that “if done by private industry alone,” this would be “the most gigantic conspiracy in modern history.”

Mr. Hadlick claims that the Bureau of Mines of the Department of Interior, which is required to estimate coming demand in fuel oil, last spring gave far too low an estimate. Who makes these estimates? One man – Alfred G. White. Where does he get his information? From the oil industry! Another official involved is Max Ball, head of the oil and gas division of the Department of the Interior, of whom the oil industry says in publication, National Petroleum News: “... an old man of the highest standing who can well be trusted at all times to see that the industry gets absolutely fair play.”

Keeping Prices Up

Such are the contradictions of capitalist society that while one government official may be busy helping the oil industry double its prices and multiply its profits, another official from the same department seems to be exposing the industry. Thus we find Secretary of Interior Krug testifying before the Senate Banking Committee that oil prices have skyrocketed beyond those of any comparable commodity. Between June 1946 and November 1947 crude oil rose 56 per cent while coal went up 30 per cent and coke 36 per cent. Since that 56 per cent estimate, crude oil again jumped from $2.15 a barrel to $2.65. The balance sheets of 16 representative oil companies for the first nine months of 1947 showed 83 per cent more profits than for the same period of 1946. Too bad the two thousand people who daily put in urgent calls for fuel during the crisis this winter in New York City couldn’t warm themselves on corporation profits.

Confronted with its policy of underproduction for higher prices and profits, the oil industry resorts to the plea of conservation of resources. One thing is certain. If the oil resources of the country are giving out, the saving of some millions of barrels will make no significant difference and will certainly not overcome the need to derive oil from other sources. However, underproduction by some millions of barrels does affect price levels.

To what extent the scarcity of tankers and the insufficiency of pipelines for transporting fuel oil contributed to the crisis this winter has not been established statistically. Be it noted that the same policy, namely, underproduction to keep up prices, in the steel industry, can in some measure at least explain the lack of adequate transportation for fuel oil. This lack was, however, also known before the winter and with proper planning, emergency measures could have been taken to avoid widespread suffering.

In a word, the oil crisis of 1948 is another chapter of the same old story: the story of production for profit against the public interest. If the people who shivered in icy homes and flats will learn this, their suffering will not have been in vain.

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Last updated: 23 December 2015