appraised value to anyone that would agree to supply its customers for the following year. This offer was made to three major oil companies which were not interested, according to petitioner.

The Board views the following circumstances as significant. Northville is one of the largest independent terminal distributors of fuel oil operating in the New York City-Long Island market. Approximately two-thirds of its total sales revenue is derived from No. 2 oil, which means that the Company probably cannot survive without at least a modest return on its sales of this product. Petitioner's assured supply for 1968 is 1.2 million barrels less than its sales for 1967. Northville purchased nearly 200,000 barrels in the first five months of this year on which it paid an aggregate of $127,000 more than it would have paid at cargo prices.

The Board granted petitioner an allocation amounting to 2,225 b/d on the ground of exceptional hardship by Consolidated Interim Decision. United Oil Manufacturing Company, et al, dated February 27, 1968. Northville contends that this award, magnified by the 905 b/d carried over to 1968 from the Board's 1967 grant, has not relieved its hardship for the year 1968. Therefore, petitioner has asked the Board for additional relief in the amount of 6,425 b/d. In this connection, the Board observes that the profit reported by petitioner for the first four months of 1968 (combined with the profit to be realized on allocation oil which petitioner will bring in subsequent to April 30) should offset any losses which may accrue in the last 8 months of the year.

The Board has addressed itself to those aspects of the No. 2 fuel oil market situation which are relevant to the 1968 petitions. The substance of the views and conclusions of the Board are set forth in its decision on Patchogue Oil Terminal Corporation, Q-9(fp), dated September 30, 1968, culminating with this statement "In summary, the Board takes the position that lack of adequate supply on economic terms constitutes, in severe instances, exceptional hardship and that such inadequacy is attributable, directly or indirectly, to the Mandatory Oil Import Program." The Board's position is applicable to the petitioner. It is the opinion of the Board that the record indicates petitioner's circumstances for the year 1968 are characterized by exceptional hardship attributable to the Program. However, the relief which has been made available by the previous actions of the Board, including the grant of 2,225 b/d in February, 1968, is sufficient to relieve this hardship.

Accordingly, Northville Dock Corporation, Q-36(fp), is granted an allocation to import 2,225 b/d of finished product (No. 2 fuel oil) for the allocation period beginning January 1, 1968 and ending December 31, 1968 (already granted by Consolidated Interim Decision, dated February 27, 1968). Further relief during this allocation year is not warranted.

PAUL H. RILEY,

DECISION OF THE PETITION OF DEEPWATER OIL TERMINAL, INC., Q-38 (FP)

Deepwater Oil Terminals, Inc., filed a petition requesting the grant of an allocation to import 1,233 b/d of finished product (No. 2 fuel oil) into Districts I-IV, on the ground of exceptional hardship. The Board is authorized to grant an allocation on this ground to persons who do not quaify to receive an allocation from the Administrator.

A hearing was held on the petition on July 1, 1968, and the decision is made on the full record before the Board.

Petitioner is one of the oldest independent petroleum marketing entities in New England. It maintains two deepwater terminals and 12 service stations near Boston. No. 2 fuel oil accounts for approximately 27% of its sales volume during 1967. No. 1. 4, 5, and 6 fuel oil, gasoline and non-petroleum products account for remaining sales. Deepwater supplies over 350 fuel retailers in the Boston area, Rhode Island, Connecticut, New Hampshire, Vermont and Maine.

Petitioner's claim of exceptional hardship is one of inadequate economic supply. Deepwater's catalog of difficulties includes several occasions when its terminals were dry, and frequent operations on a day-to-day basis during the 1967-1968 heating season. In February, 1968, its plight was such that petitioner paid a large premium for supply which was sold at a loss of two full cents per gallon ($25,000 total).

Petitioner states that it has solicited supply from past and present suppliers without success.

On the financial side petitioner states that it incurred very large losses in 1966 and 1967 and projects a loss of over $225,000 for 1968. Indeed, it reports a loss of $31,000 for the first four months of this year, normally a profitable period, in spite of the Board's award of 144 b/d. Deepwater claims that a drastic decline in 1968 profits on the sale of other products will mean an overall loss for the company for the first time in recent years.

The Board views these circumstances as significant. Petitioner's assured supply for 1968 falls short of its 1967 volume of sales (approximately 93 million gallons) by nearly 20%. Deepwater had supply from four major oil companies in 1967; one of these offered nothing in 1968 and the other three reduced their offerings. The Board has addressed itself to those aspects of the No. 2 fuel oil market situation which are relevant to the 1968 petitions. The substance of the views and conclusions of the Board are set forth in its decision on Patchogue Oil Terminal Corp., Q-9(fp), dated September 30, 1968, culminating with this statement "In summary, the Board takes the position that lack of adequate supply on ecoonmic terms constitutes, in severe instances, exceptional hardship and that such inadequacy is attributable, directly or indirectly, to the Mandatory Oil Import Program." The Board's position is applicable to the petitioner.

It is the opinion of the Board that petitioner is continuing to suffer exceptional hardship attributable to the Program.

Accordingly, it is the Board's decision that Deepwater Oil Terminals, Inc., is granted an allocation to import 387 b/d (141,642) of finished product (No. 2 fuel oil) into Districts I-IV, for the current allocation period beginning January 1, 1968 and ending December 31, 1968. This award is in addition to the interim award of 144 b/d granted to petitioner on February 27, 1968.

STANLEY NEHMER,

Member.

PAUL H. RILEY,

Member.

GLEN D. JOHNSON,

Chairman.

U.S. DEPARTMENT OF THE INTERIOR,
OIL IMPORT APPEALS BOARD,
Washington, D.C.

DECISION ON THE PETITION OF GIBBS OIL COMPANY, Q-50 (FP)

Gibbs Oil Company filed a petition requesting the grant of an allocation to import 1,213 b/d of finised product (No. 2 fuel oil) into Districts I-IV, on the ground of exceptional hardship. The Board is authorized to grant an allocation on this ground to persons who do not qualify to receive an allocation from the Administrator.

A hearing was held on the petition on July 31, 1968, and the decision is made on the full record before the Board.

Gibbs is a long-established fuel oil marketer selling in the Metropolitan Boston and Lowell, Massachusetts areas. Its No. 2 fuel oil operations are conducted from a deepwater terminal in Revere, Massachusetts. The company also owns and operates a barge terminal in Bangor, Maine but is not a distributor of No. 2 fuel oil from this facility. In addition petitioner sells gasoline and auto accessories in Massachusetts and other New England areas.

Petitioner's claim of exceptional hardship involves both deficient supply volume and an increasing cost-price squeeze. Two years ago Gibbs entered into a supply arrangement with a major oil company running annually from November 1 through October 31. In February, 1968, petitioner was informed by its supplier that this supply would be reduced by 10 million gallons and must cover the additional months of November and December (beyond the previous contract year).

Gibbs also reports profits declining from $32,000 in 1966 to $18,000 in 1967 and projects a loss of $153,000 for this year. Petitioner states that its efforts to supplement its prime supply contract were met with completely negative responses or with price quotations that were clearly non-competitive.

In justification for its proposed growth of sales, volume, Gibbs explains that in 1966 it was forced by market circumstances to acquire the Revere terminal although its gallonage did not support such a facility. Therefore, it is operating under the necessity to expand sales in order to reach a satisfactory level of terminal thruput.

The Board is persuaded that petitioner is confronted with an unusual and oppressive supply difficulty. It is also apparent that Gibbs is caught in a costprice squeeze which has been injurious and threatens to be destructive. Moreover, this squeeze cannot be explained in major part by petitioner's under-utilization of terminal capacity.

Gibbs alleges that its disadvantage became unbearable following the Board's interim award in February, but has adduced no evidence in support of this contention.

The Board has addressed itself to those aspects of the No. 2 fuel oil market situation which are relevant to the 1968 petitions. The substance of the views and conclusions of the Board are set forth in its decision on Patchogue Oil Terminal Corp., Q-9(fp), dated September 30, 1968, culminating with this statement "In summary, the Board takes the position that lack of adequate supply on economic terms constitutes, in severe instances, exceptional hardship and that such inadequacy is attributable, directly or indirectly, to the Mandatory Oil Import Program". The Board's position is applicable to the petitioner.

It is the opinion of the Board that petitioner is suffering exceptional hardship attributable to the Program.

Accordingly, it is the Board decision that Gibbs Oil Company, is granted an allocation to import 371 b/d (135,786 bbls.) of fifinished product (No. 2 fuel oil) into Districts I-IV, for the current allocation period beginning January 1, 1968 and ending December 31, 1968.

FIRMER PRICES DUE FOR DISTILLATE FUELS-THANKS TO HYDROCRACKING. SURPLUS DISTILLATES WHICH ONCE SWAMPED MARKET FOR DIESEL FUELS AND HEATING OILS WILL BE PROCESSED INTO GASOLINE AND JET FUEL

A long-term firming trend lies ahead for prices of distillate fuels, thanks to the increased use of hydrocracking in domestic refineries.

Refiners will be able to command higher prices for diesel fuels and heating oils because these products no longer will be a "drug on the market." The hydrocracking process allows refiners to convert their excess distillates into gasoline and aviation turbine fuel.

This is the prediction of Hugh Guthrie, manager of products economics for Shell Oil Co.

Changed picture.-"Exactly what will occur in diesel-fuel prices we do not know," Guthrie said.

"We do expect that prices win strength to the point where the differentials between diesel fuel, aviation turbine fuel, and gasoline are about equivalent to the relative capital and other manufacturing costs for the products.

Direct manufacture of distillate from crude oil with its associated relative capital and manufacturing costs will set an upper limit beyond which prices for distillate products should not increase."

Guthrie note that previously distillate products could sell for less than crude oil. This situation developed if gasoline economics supported increased gasoline manufacture even though it resulted in heavy production of by-product distillates. The price differential between motor gasoline and distillate tended to vary with short-term supply situations. But the basic economic decision factors supported a high differential.

"With hydrocracking, we would expect this differential to shrink," he said. Difference still will exist between each company and even each refinery, but the general impact of hydrocracking will be to strengthen diesel fuel prices.

A look back. The future position of distillates will be vastly different from that of the early 1960's, according to Guthrie.

Surplus capacity for all products characterized the refining industry in those days. The problem with distillate-fuel oils was compounded by a seasonal demand and higher quality standards for gasoline.

The high operating rates on conversion units to meet quality requirements and peak seasonal demands meant recurring surpluses of all distillate fuel oils. This particularly was true for the catalytic distillates of low cetane quality. This meant that by-product economics frequently governed marketing decisions on diesel fuels. Use of price incentives to push sales of catalytic distillates added more pressure.

Hydrocracking impact.—The refiner now has the option of using distillate as a raw material for motor gasoline and turbine fuel.

Users who burn distillates aren't the only source of demand. The petroleum industry itself has a demand for distillate as a raw material.

"In other words," Guthrie said, "demand for gasoline and turbine fuel will represent in our U.S. refining industry an indirect demand for distillate. Since there is no major shift in supply of distillate, we must expect the price for distillate to strengthen."

Trends.-Guthrie estimates that total domestic demand for distillate over the next 10 years should grow at the rate of 1.1%/year. Consumption will climb from 2,205,000 b/d in 1967 to 2,450,000 b/d in 1977.

Total domestic gasoline demand will show a 3%/year growth-from 5,170,000 b/d in 1967 to 6,925,000 b/d in 1977.

Total domestic jet-fuel demand will rise at the rate of 7.9%/year-from 737,000 b/d to 1,550,000 b/d. Residual demand will post only a 0.3% rise from 1,754,000 b/d to 1,776,000 b/d.

For diesel fuel the average gain will be 2.9%/year, a sharp decline from the 4.5% in the 1955-65 period. Diesel volume will rise from 765,000 b/d in 1967 to 1,010,000 b/d in 1977. Highway use of diesel will continue to show the greatest growth-a 5%/year rate which is down sharply from the 13.2% annual growth rate in the previous decade.

Crude runs are expected to increase east of the Rockies from 8,052,000 b/d in 1966 to 10,590,000 b/d in 1977, and west of the Rockies from 1,392,000 b/d to 1,973,000 b/d.

Gasoline yield east of the Rockies will rise from 46.4 to 47.2% of the barrel, and west of the Rockies from 42.1 to 47.8%. Distillate yields will drop from 24.2 to 20.1% in the eastern region and from 14.3 to 13.7% in the west.

Residual yields will decline also, from 1.4 to 2.6% east of the Rockies and from 20.7 to 9% in the west.

APPENDIX D

INDEPENDENT FUEL TERMINAL OPERATORS ASSOCIATION,

Hon. STEWART L. UDALL,
Secretary of the Interior,

Washington, D.C.

Washington, D.C., October 30, 1968.

DEAR MR. SECRETARY: Pursuant to the request of Assistant Secretary Moore, I am pleased to present the proposal of the Independent Fuel Terminal Operators Association for amendment to the Oil Import Proclamation and Regulations to be issued late this year relating to imports during calendar year 1969.

The Association is composed of the independent deepwater operators along the East Coast, from Maine to Florida.* All members own or control deepwater terminal facilities capable of receiving tanker shipments, and none is affiliated with a major oil company.

Many of the members petitioned the Oil Import Appeals Board for relief on the grounds of exceptional hardship and over the past year have received allocations for No. 2 fuel oil from the Board.

Basically, our plight is due to the anti-competitive impact of the Oil Import Program, which gives a tremendous advantage to our direct competitors, the major oil companies. These companies share in the benefits of the Program through allocations of crude oil and allocations of finished products.

*See Attachment A.