Barbarians At The Pump

By Janice Castro

"I'm asking the oil companies to do their fair share. They should show restraint, and not abuse today's uncertainties to raise prices."

-- President George Bush

The rebuke came from the very top. During his Oval Office speech last week about his decision to send U.S. troops to Saudi Arabia, the President exhorted Big Oil to resist the temptation to profit from a bad situation. Iraqi tanks had hardly arrived in Kuwait a week earlier when the majors started jacking up prices at gas pumps across the U.S. In the first four days, the price of self- serve, unleaded gas rose 7.1 cents per gal., according to an American Automobile Association (AAA) check of 1,400 stations. By last Friday prices were up an average of 18 cents per gal. Said a wholesaler: "Since this Kuwait thing, the price has been going up two, three, four times a day." No wonder Judy Bauer, a Chicago gas-station owner, lost track. Asked what she was charging, Bauer told a caller, "Let me go out in front and look. It keeps jumping so much I can't even keep up with it."

The President's call for restraint came amid a fast-rising tide of public wrath toward the oil industry. Michigan Governor James Blanchard accused oil companies of war profiteering, a politically loaded charge rarely leveled since World War II. On Capitol Hill last week, congressional committees hastily convened hearings to investigate allegations of price gouging and even price fixing. According to a House estimate, the oil industry raked in a $1 billion windfall in the first week after the Iraqi invasion.

Connecticut Democrat Joseph Lieberman, backed by 19 of his Senate colleagues, urged the President to establish an oil-price task force to monitor the industry. "American consumers are being ripped off on a massive scale," said Lieberman, adding, "The Soviet Union and China have done more to help America in the last five days than our own oil industry." Senate minority leader Robert Dole hinted that Congress might have to rein in prices if the oil industry refused to do so. "Oil companies never learn," he said. "They're just asking for some kind of an excess-profits or a windfall- profits tax."

The critics argued that overnight gasoline-price hikes were unfair since shipments of the higher-priced crude could not possibly reach U.S. shores in less than six weeks. Therefore, they reasoned, the oil companies were raising prices greedily on products already in hand. In a TIME/CNN poll conducted by Yankelovich Clancy Shulman, 87% of those surveyed considered the oil-price increases to be unfair, and 80% said there should be laws to limit how much oil companies can raise prices during a crisis.

At first the industry vigorously defended its pricing policies. Charles DiBona, president of the American Petroleum Institute, accused the industry's critics of taking "a naive and one-sided view of how markets work." In fact, wholesale prices for more than two-thirds of all the oil imported into the U.S. are pegged to the spot prices set by commodity traders at the New York Mercantile Exchange, where the cost of oil floats up and down according to global supply and demand. Though spot-market prices for gasoline rose 20 cents per gal. in the first few frantic trading days after the invasion, DiBona pointed out, the major oil companies boosted their wholesale prices by only 12 cents during that period.

Meanwhile, prices were rising simultaneously all along the distribution pipeline as wholesalers and retailers alike tried to cover the so-called replacement cost of buying new, more expensive supplies. Said Richard Hebert, a spokesman for the AAA: "It used to take six weeks for a jump in the price of crude oil to find its way to the pumps. Now it happens in six minutes."

In contrast to the oil shocks of the 1970s, when gas retailers often engaged in price wars, little competition was seen last week. One reason: the number of gas stations in the U.S. has dropped from just over 190,000 in 1974 to about 110,000. Representatives of Amoco and BP of America defended the so- called pack pricing of gasoline. If his company charged less than the others, explained Amoco spokesman Mike Thompson, customers would flock to Amoco stations and buy all their gasoline. Some stations might even run out of gas, he contended.

But this view of supply and demand failed to win much sympathy among motorists. In response to Bush's call for moderation last week, the oil companies began softening their stance. Texaco, BP America and Conoco said they would roll back gasoline prices by 1 cents to 4 cents per gal. Unocal, Amoco and Getty announced that they would freeze prices at the pump for a week or more, depending on conditions in the world markets. So for the moment, at least, the runaway price hikes that followed the invasion of Kuwait have been stopped in their tracks. But that was cold comfort to motorists, who were paying 17% more for their gasoline than just a week ago.

With reporting by Michele Donley/Chicago and Nancy Traver/Washington