HOW HEATING OIL PRICES ARE SET

An article in the Aug. 8 issue of The Journal of Commerce, noting statements made by New York state officials concerning the retail heating oil industry, points out the increasing and unfortunate adversarial position between government and private industry in New York.

The remarks of state officials Richard Kessel and William Cotter, noted in The Journal, could be viewed, of course, as simply a few more "straws on the camel's back. However, such remarks are certainly devisive in nature, and foster an economic climate in New York where an "us against them" attitude permeates the government/industry relationship.Indeed, one wonders how such a respected author/economist as Lester C. Thurow (of the Massachusetts Institute of Technology) could ever envisage the evolvement of a federal industrial policy if government continues to glare across the net at private enterprise as if they were angry opponents facing each other at "match point."

Using the above-cited Journal article as an example, one wonders if it was really necessary for Mr. Kessel, New York state consumer protection director, to "warn" heating oil marketers that he will "monitor" heating oil prices to ensure that they do not increase beyond "reasonable levels.

Mr. Cotter's agency, the New York State Energy Office, has been monitoring both gasoline and heating oil prices for several years. His efforts at

accumulating this data have met with the full support and cooperation of marketers of both products, who applaud the State Energy Office on an excellent job of accurately reporting market conditions.

Additionally, The Journal of Commerce does a thorough job of reporting on a daily basis the prices of all petroleum products at various marketing levels throughout the world. The financial pages of other dailies also report futures and spot prices of crude and refined products. Heating oil prices, it would seem, are as much of a State secret as the President's current urological problems.

Onto this well-reported scene now strides the State Consumer Protection director to announce that he will apply his own measure of "reasonableness" to the retail sector of petroleum prices. One wonders exactly whose interests are served by the threatened specter of yet another government/industr y confrontation.

How, indeed, does one apply the highly subjective measure of reasonableness to the heating oil market anyway? Each of the 300 or so heating oil distributors in metropolitan New York City, who actively compete with each other for the consumer's account, would have a different answer and definition. Some distributors sell for cash only. Others sell on credit and even offer budget plans over an entire year. Some have expensive, round-the- clock service departments. Others sell heating oil only. Even the premiums each individual company pays for liability and pollution insurance vary widely

from company to company.

Lumping together all of his product and overhead costs, each distributor arrives at his own market price, always with the full knowledge that there are dozens of competitors out there actively soliciting his own customers. Thus,

from a menu consisting of a broad spectrum of market prices and differing services, the consumer selects his own supplier. Personalexperience, born of over 40 years in the petroleum industry, tells me that the consumer's judgment of what constitutes a "reasonable price is far more astute than that of most governmental officials. Quite possibly the consumer is considerably smarter than some in govern ment want to admit.

Lest we forget, recall with me the heating oil markets last fall. Crude and wholesale heating prices rose in the summer and fall of 1985 while most retail marketers held their own prices steady. In other words, because of the free market, most retailers "ate" a large portion of their increased costs during the fall of '85.

Once again last fall, onto this scene strode Mr. Kessel and New York Gov. Mario Cuomo predicting that there would be huge increases of probably 20 cents or more a gallon for home heating oil. Of course, within a short time, there was a precipitous decline in heating oil prices, proving once again the folly and fancy of most governmental price predictions.

Had Mr. Kessel felt strongly in 1985 about his forecast of higher heating oil prices, he could have paid a visit to the New York Mercantile Exchange to invest his own funds in a very volatile futures market where heating oil prices change oftentimes from hour to hour. The financial losses he might have suffered, assuming that he based his investment on his forecast, would undoubtedly have been outside the scope of "reasonablene ss."

The free market and healthy competition among dealers is the consumer's best assurance of paying a "reasonable price" for heating oil. The politics of portraying government as the "good guys" and businessmen as the "bad guys" makes about as much sense in this day and age as adults continuing the game of Cowboys and Indians we all played as children. The time has long since come and gone for adversarial confrontation to be considered as acceptable political posture. There is plenty of room for both government and industry to improve their re spective acts. Let's each get on with it without the menacing glares across the net.

Let's stop making every day "match point."

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