forms crude into more efficient particular energy products. In 1969, the domestic refinery yield was as follows: 16

Gasoline

Distillate fuel oil..

Jet fuel

Residual fuel oil.

Kerosene

Lubricants

Percent

45. 5

21.6

8.2

6.8

2.6

1.7

As of January 1, 1972, there were 282 domestic refineries and approximately 129 refining companies." The 1970 crude oil refining capacity as shown in Table II-3, accounted for by the leading 4, 8 and 20 firms, was 33, 58 and 86 percent respectively. These same firms accounted for 34, 59 and 87 percent of gasoline refining capacity.18

TABLE II-3.-Company share of domestic crude oil and gasoline refining capacity, 1970

1 The top 20 firms in gasoline capacity included Clark Oil (1.21 percent), Tenneco (1.35 percent), and American Petrofina (0.85 percent), in lieu of 18-20 above.

Note: Data obtained from Mineral Industry Surveys, Bureau of Mines, "Crude Oil Capacity," Jan. 1, 1971.

supra.

18 Standard and Poor's Industry Surveys, June 3, 1971, p. 066. The remainder consists of asphalt and petrochemicals. 17 Report on Crude Oil and Gasoline Price Increases of November 1970, p. 46, clted 18 As of January 1, 1961, there were approximately 311 domestic petroleum refineries and aproximately 175 refining companies. While crude refining capacity increased by 24.6 percent from January 1961 to January 1971, the share accounted for by the leading four and eight firms increased approximately 4.4 and 12.1 percent respectively. For gasoline capacity, the increase was 7.3 and 10.1 percent. Thus, an increasing trend in concentration may be observed. For 1960 data, see "Mineral Industry Survey," January 1, 1961 cited supra. Moreover, due to the existence of processing arrangements between major oil companies and independent refiners through which major oil companies supply crude oil in return for refined product, this figure may substantially understate effective refinery concentration.

A comparison of firm rankings in refining and production (Table II-4) yields some interesting results. While there are some minor deviations, three of the top four refiners are among the top four crude producers and the top eight refiners are also the top eight crude producers. Further, 16 of the top 20 refiners are among the top 16 crude producers. Hence, independent monopsonistic purchasing power conducive to downward pressure on crude prices is virtually absent.

TABLE II-4.-A comparison of company ranking in crude production and crude refining capacity

1 Based on rankings of tables 2 and 3. Production share is for 1969. Crude refining share is for 1970. Not ranked within the top 20 firms in crude refining capacity.

There could, of course, still be some downward pressure on crude prices, despite the integration of the leading firms, if there were a mismatch between a company's crude production and its refining capacity.19 The extent of this would depend upon the degree of selfsufficiency and the marginal effect of higher crude prices on total revenue due to the interrelationship of self-sufficiency and the marginal effect of higher crude prices on total revenue due to the interrelationship of self-sufficiency and the oil depletion allowance. De Chazeau and Kahn developed a simple model to examine this relationship.20 They determined that a company with a self-sufficiency greater than 77 percent would benefit from a crude price increase even if this increase were not passed on in the price of products at all. If 50 percent of the price increase were passed on, a company with a degree of selfsufficiency in excess of 38.5 percent would benefit from a price increase.

19 It must be kept in mind that the aggregate supply and demand of crude are equalized at a given price through prorationing.

20 For the complete model see De Chazeau and Kahn, Integration and Competition in the Petroleum Industry, Yale University Press, 1959, pp. 221–222.

98-209; 98-345 O 73 - 5

Their estimates were based on the 2712 percent depletion allowance which was in effect at that time.

Using the identical model and substituting the present 22 percent depletion allowance only alters their conclusions slightly. If the price increase is not passed on, a company with a self-sufficiency in excess of 40.4 percent would benefit from a price increase. The greater the percentage of the price increase passed on, the lower the self-sufficiency required to benefit from a crude price increase.

As can be seen from Table 5, all of the Top 8 and 15 of the Top 17 refining companies have self-sufficiency greater than 40 percent. Three of the Top 8 and 5 of the Top 17 have self-sufficiency greater than 81 percent. Thus, vertical integration combined with the depletion allowance places upward pressure on crude prices.

It is vitally important to keep in mind that while the recent removal of the oil import quota may to some extent exert slight downward pressure on crude prices as the U.S. price reaches an equilibrium with world prices, it will not necessarily substantially alter the structure of the refining level of the petroleum industry. This is true for two reasons. First, the major integrated companies have substantial interests in crude oil production world-wide. Second, and most important, it is questionable that new independent refiners would enter the market, even with available supplies of foreign crude. The reason is quite simple-the uncertainty of the continual availability of foreign crude. Just as the federal government first restricted imports and then removed them, they may be restored at a moment's notice. And since refining is the pivotal point in the petroleum industry, the implications are that removal of the import quotas alone may not be sufficient to cure the present ills of the industry or alter its noncompetitive performance significantly.

TABLE II–5.—Domestic self-sufficiency of the 17 leading refiners 1969

TABLE II-6.-Worldwide self-sufficiency of the 17 leading U.S. refiners 1969 and 1959

1 Does not include British Petroleum which had a self-sufficiency in 1959 and 1969 of 131.1 percent and 157.4 percent respectively.

Data for the same 4, 5, 8, and 17 leading companies in 1969.

These are Standard Oil (New Jersey), Gulf, Texaco, Standard Oil (California), and Mobil.

Note: Ratios obtained from the "Oil and Gas Journal," Jan. 18, 1971, pp. 22-23. Multicompany measures were computed from production and capacity data contained in the same source.

C. Gasoline Marketing

21

Gasoline marketing is the most competitive areas of the petroleum industry and has the largest number of independent companies."1 Marketing consists primarily of jobbers purchasing refined gasoline and supplying retail gasoline stations. These jobbers may be completely independent, may own their own retail stations, or may be vertically tied to refinery operations. They also may carry branded or unbranded products.

The 1970 gasoline market shares of the Top 20 companies are presented in Table 7. The Top 4, 8, and 20 companies accounted for approximately 31, 55 and 79 percent, respectfully, of domestic gasoline sales. The Top 4 and 8 gasoline marketers correspond with the Top 4 and 8 refiners, and the Top 8 crude producers are identical with the Top 8 marketers and refiners (See Table 8).

The distinction between the major branded retail gasoline stations and the independent stations is one of the primary reasons for price competition at this level.22

Because gasoline constitutes the primary output of the refinery, we have limited our discussion here to gasoline marketing.

It must be pointed out that while this physical distinction exists, the actual effect on competition is becoming increasingly more difficult to assess because of the trend toward joint ownership. Major oil companies may own both major brand and so-called "independent brand" gasoline stations in the same market area. Independent stations also may own other independent stations, under a different brand name, in the same market. Thus, competitive pressures in some markets may be significantly less than the independent-major brand rivalry would seem to indicate.

TABLE II-7.-Company gasoline market shares 1970

NOTE.-Market shares obtained from National Petroleum News, "Factbook Issue," midMay 1971, p. 127.

TABLE II-8.-A comparison of company ranking in crude production, crude refining capacity, and gasoline sales

1

1 Based on the rankings of tables 4 and 7. Rank in production is for 1969. Rank for capacity and gasoline sales is for 1970.

2 Not ranked wit

top 20 firms.