THE HOLE IN THE DOUGHNUT

"A quarter for a doughnut? They only charge a dime across the street," said the lady. "Buy them across the street, then," said the grocer. "They're out of them." "Listen, lady, when I am out of doughnuts, I only charge a dime, too."

That, in a doughnutshell, is the situation with rollbacks of oil prices. Since "new" and stripper-well oil was decontrolled, this part of the oil supply has increased linearly and immediately with the price, as can be ascertained from the weekly statistics. The reason is simple. The vast majority of abandoned oil wells in the US were abandoned not because they ran dry, but because their operation ceased to be profitable. With decontrolled oil at $10.50 a barrel, these wells are now once again being tapped. Roll back the price, and you roll back the oil. Some 350,000 stripper wells (yielding less than 10 b/d) have proved that the law of supply and demand is still working.

There is no such incentive for "old" oil, whose controlled price has only recently been raised to $5.50 a barrel. Meanwhile, yet a third tier of prices has opened up imported gasoline, of which there is plenty in the North East, according to the Wall Street Journal, at $20 a barrel. And the brokers selling it are presumably saying "Listen, lady, when we are out of gas we sell it at the controlled prices to."

The present gasoline shortage is basically due to a shortage of crude oils and worse is to come this spring when a lack of refinery capacity will show up. Since it take 3 years to build a refinery, it is true that increased price cannot immediately result in increased capacity. But surely it is better to have a capacity shortage only than a feedback shosrtage as well.

Rolling back oil prices is an attempt to cure a disease by what caused it in the first place.