oil feed stocks for 1970 and 1971 closely track each other throughout most of the year. By the end of 1971, however, the days supply of crude oil had begun to drop considerably below the level of 1970. Then, as can be seen from Figure 6, a large crude oil shortfall developed during 1972 that grew worse in 1973. By February 1973 the days supply of crude oil inventories had fallen to 19 days from about 24.5 days for 1970 and 1971, a significant reduction of approximately 5.5 days supply. The domestic production of crude oil in barrels per day for 1970 through 1973 is presented in Figure 7 and Table 10. Domestic production peaked in May of 1972 and declined from that point to the end of the year by about 300,000 barrels per day. With domestic production reaching its peak early in 1972, the only readily available source of additional crude oil feed stocks was increased crude oil imports. This was the only short-run measure that could be used to increase the levels of crude oil supplies for U.S. refineries to permit them to operate at high levels of capacity. Monthly averages for daily crude oil imports for 1970 through 1973 are shown in Figure 8 and Table 11. Figure 8 shows that the level of crude oil imports was not significantly increased in 1972 relative to 1971. In contrast to this small increase of imports during 1972, the very large increases of crude oil imports during 1973 can be observed. As previously stated, in order to provide adequate supplies of crude oil feed stocks to meet the needs of U.S. refineries, the level of crude oil imports would have to be substantially increased. Year Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. 1 Includes base condensate. Note: All figures expressed in thousands of barrels per day. Source: Bureau of Mines monthly petroleum statement and (advance release). TABLE 11.-CRUDE OIL IMPORTS PAD I-IV, 1970-73 1970. 1971 1972 1973. 1 Projected. Aver Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Dec. age 856 815 1,309 1,430 868 1,042 1,436 1,509 1,167 944 1,063 1,072 1,090 863 931 1,008 871 851 1,552 2,435 * Estimated. Note: All figures expressed in thousands of barrels per day. Source: Independent Petroleum Association of America, monthly supply and demand outlook data, based on Bureau of Mines monthly petroleum statements. This did not occur until 1973 when the U.S. found itself in the midst of a very serious petroleum product shortage. During 1972 crude oil imports increased by less than 400,000 barrels per day, while during 1973 they are projected to increase by almost 900,000 barrels per day (see Table 11). The relationship between demand, supply and inventories of heating oil and gasoline for 1972 and 1973 in comparison to 1971 can be observed from Figures 9 and 10. An analysis of these charts shows that at the beginning of 1972 relative to 1971, supply was not adequate to meet increases in demand, and this resulted in falling inventories in the first quarter of 1972 which did not recover to sufficient levels throughout the remainder of 1972 or 1973. As previously discussed, the drawdown of heating oil and gasoline inventories was caused by the underutilization of refining capacity during 1972 and 1973, with the consequence of severe heating oil shortages during the winter of 1972-1973 and a gasoline shortage during the summer of 1973. 135 Demand, Supply and Inventories of Heating 011 for 1972 and 1973 Supply is monthly production plus monthly imports of finished product. 135 130 125 120 115 110 205 100 75 125 75 FIGURE 9 With domestic production of crude oil peaking during the first half of 1972, the only way to provide an adequate level of crude oil feed stocks was to substantially increase the level of oil imports. In the final quarter of 1972, the President amended the oil import quota and gave the oil industry the opportunity to increase oil imports by 10% of the projected level of imports for 1973. Several of the larger petroleum companies did not use any of their additional authority to import crude oil during the final quarter of 1972 (see Table on p. 82). Without these additional imports it was virtually impossible for U.S. refiners to operate at high levels of output during the final quarter of 1972 to meet the rapidly rising demand for heating oil. In fact, as previously discussed in this report, the level of capacity utilization during the final quarter of 1972 was inadequate to meet demand and the petroleum product shortage, first with heating oil and later with gasoline, developed. CHAPTER IV. DETERMINING OIL IMPORT POLICY FOR 1972 DEADLINE FOR CHANGING THE OIL IMPORT PROGRAM In a September 2, 1971 memorandum to General Lincoln, Robert E. Shepherd of the Oil Policy Committee Working Group, passed on to the General the Working Group recommendation that decisions on changes in the level of oil imports and other changes in the import quota system for 1972 be completed no later than November 1, 1971. INDUSTRY INPUT TO PLANNING 1972 OIL IMPORT PROGRAM At a meeting on November 5 officials of the Office of Emergency Preparedness met with representatives of Shell and Humble. The industry representatives said they expected the oil import program for 1972 to remain as it was in 1971 with another 100,000 B/D increase in oil imports for PAD Districts I-IV in 1972. 1972 OIL IMPORT PROGRAM MODELED AFTER 1971 No decision on 1972 import levels had been announced by November 12. At a meeting of the Oil Policy Working Group 16 on this date, William Truppner, Chairman of the Group and representative of OEP, stated that "... we have run out of time to initiate any action that required an appreciable change in the [import] program." No decision on 1972 import levels had been announced by November 17, 1972. On that date Truppner directed a memorandum to General Lincoln, as Chairman of the Oil Policy Committee, stating that the 1972 program should make minimal changes in the 1971 program; that there was no overriding necessity to make significant modifications; and that, in any event, it was too late now to explore serious modifications for calendar year 1972. The recommendation: “... The 1972 program be modeled as closely as possible on the 1971 program in terms of quota level and allocation systems" and that the 1972 level for Districts I-IV be increased by 100,000 barrels per day. The memorandum also pointed to a need for future re-examination of the Mandatory Oil Import Program. Pertinent portions of the November 17, 1971, memorandum are as follows: General: It was generally agreed that the overall guiding principle governing development of next year's program should be to make minimum changes in the 1971 levels in allocation systems for 1972 and to go out with proposed rule making early in 1972 with new alternatives and methods of allo 16 The Oil Policy Working Group consists of representatives of the participating agencies who meet prior to Oil Policy Committee meetings to prepare preliminary recommendations for OPC consideration. (34) |