Oil: are those new high prices justified?

Rising costs for home heating oil and gasoline are quickly dispelling any lingering notions about what was once believed an almost inexorable economic "law" about supply and demand - that the less used of a plentiful supply, the lower the price. Because many American families have found their pocketbooks pinched extra-hard of late from soaring fuel bills, despite the fact that supplies are ample and use is down, some hard questions have to put to the Reagan administration as well as the US oil industry.

Are the recent rounds of price hikes -- with refiners boosting wholesale gasoline prices 7 to 10 cents a gallon, for example -- actually justified by market conditions? In this regard we note that Amoco Oil Co. has announced that it will close one of its refineries later this year because of dwindling demand for petroleum products within the US. Irate consumer groups, not to mention private citizens, are not alone in asking what exactly is going on here? The price increases since Mr. Reagan eliminated remaining federal controls on oil and gasoline Jan. 28 are "difficult to justify in light of the general availability of supply and the extremely competitive retail marketplace," asserts William Quortrup, president of the National Oil Jobbers Council.

Mr. Quortrup's concern, which should not be taken lightly by industry, is that price hikes since decontrol "escalate public skepticism" and "provide unnecessary ammunition to those who would prefer to see" the oil industry under rigid government controls."

For these reasons, there is merit in the request by the Energy Action Educational Foundation that the Justice Department take a hard look at current price increases. Congress may also want to assert its traditional investigative role to ensure that the public is not being unfairly taken advantage of now that the prevailing political environment is one of freeing up industry in general from government regulation and, in the case of oil, perhaps often overzealous supervision in the past by the Department of Energy.

Among questions that lawmakers may want to sort out are these: Are the oil companies, as they assert, merely recouping OPEC price rises, not yet passed through to the public? How are the monies from the higher costs being used by the companies? For future deep-water exploration? To buy or develop additional fuel sources such as coal or nuclear power? And are the added costs serving a useful purpose in the sense that they are encouraging fuel conservation?

Final decontrol was a step in the right direction, and one that would have come under a second Carter administration as well as the Reagan administration, whatever the actual timing of the decontrol order. But decontrol also brings with it greater responsibility on the part of the energy companies in ensuring restraint in pricing policies. Not to show restraint will only prompt calls from an outraged public for a reimposition of tough regulation, exactly as Mr. Quortrup suggests.

The Reagan administration must now take firm steps, perhaps through private discussions with the oil companies as well as a Justice Department review, to ensure that the recent spate of price hikes are not merely the first round in a succession of increases -- despite ample supplies and a competitive retail marketplace. The credibility of more than the oil companies is at stake.

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