COST OF PETROL.

Hawke's Bay Tribune, Volume XIII, Issue 186, 24 July 1923, Page 7

COST OF PETROL.

A DIFFICULT PROBLEM TO SOLVE. The cost of production of u gallon of gasoline is 0110 of the most difficult problems in the petroleum industry, according to authorities, states the “New York Times.” The question has caused much discussion recently because of the charge that prices are exorbitant and may go still higher. Experts have tried to figure the cost and have failed, it is said. The Standard Oil Company of California, the largest factor in the industry on the Pacific Coast, and widely interested in South American propertiesj in a summary reviewed the problems governing the cost of gasolino. 4 ‘ The cost of a finished gallon of product from the distillation of crude petroleum is a subject that has interested many economists, ‘investigators’ and writers, ’ ’ says the company. ‘ ‘ The investigator particularly has sought to show that fuel oil, or lubricating oil, or kerosene, or gasoline, which ever one he may bo particularly interested in, either costs a great deal or costs very little, whichever best serves his purpose. One of the most elaborate attempts to solve the problem was made during the war. The Federal Fuel Administration sought the answer. It employed a firm of engineers which, after many weeks of study, reported in reference to gasolino that it was impossible to determine the cost. ’ ’

Reference is made to the Federal Trade Commission’s report on the Pacific Coast petroleum industry, which says: “There is no method by which an entirely satisfactory unit of cost can be compiled for each of the numerous products that are obtained from a barrel of crude petroleum. The difficulty in computing a fairly satisfactory cost for each product is chiefly due to two facts :(1) Because it is difficult to assign to each product its just proportion of the cost of the raw material—crude petroleum—which is the largest single item of cost; and (2) because refining processes arc continuous and there is an interrelation between these processes and between the products secured therefrom.”

It ii pointed out that during the war the Federal Trade Commission, after conference with representatives of, the petroleum refining industry, “determined that the most logical method of determination of cost of petroleum products was to allocate costs to the particular product on the basis of sales value of the product. The Commission stated, however, that while this method was superior to any other, any method of determining the cost of the several' petroleum products was arbitrary. This method or any other arbitrary method has a value only for the purpose of comparing costs for one period of time as against another, or for establishing a f uniform system for arriving at price for inventory purposes. “It is obviously impossible to literally fix the cost of the porterhouse steak, or the gallon of gasoline,” says the company’s report, “and the facts are that the cost of any individual product in the distillation of crude oil is indeterminable. There are, of course, numerous determinable factors which enter into 4he market price of gasoline. Once gasolino has left a refinery for the market, the principal costs are distribution, by boat, tank car, and motor-truck and selling. These are readily ascertained. Incidentally, the cost of marketing is relatively high in these days of public demand for a very high standard of service.’’