Until the 1970s, oil was a relatively stable commodity. The price of petroleum in the U.S. had risen less than 2 percent from 1947-1967, but that was all about to change drastically. Oil price spikes would almost become commonplace during the ‘70s, and Americans learned, albeit briefly, that oil would not always remain readily abundant or cheap.
The trend of the increasing world consumption of oil continued into the ‘70s. New petroleum distribution systems started to be put in place through increased imports and the building of new refineries.
The July 1973 NPN issue discussed the federal government’s attempts to impose voluntary allocation programs, where producers, refiners, marketers, jobbers and distributors were supposed to voluntarily make available to each of their customers the same amount of the petroleum that they had provided during 1971 and 1972. The majors protested the program, but the independent marketers saw it as helping them ride out the supply shortage.
The development in the Middle East in October 1973 was about to strangle that already tightening supply of oil. When the Organization of Petroleum Exporting Countries (OPEC) announced an oil embargo against the U.S. on Oct. 17, 1973, the event rocked the petroleum industry. The action was retaliation for the American support of Israel during the Yom Kippur War, but the impact of the embargo was vast, spurring everything from crude oil prices tripling to the concept of oil conservation and rationing.
Effects of the Oil Embargo
After October, the political and petroleum situation became devastatingly worse. On Nov. 5, 1973, Arab producers announced a 25 percent output cut. To help curb inflation, President Richard Nixon signed the Emergency Petroleum Allocation, a mandatory allocation program, which dictated the price, production and marketing of oil. Thus, marketers could not charge an adjusted free-market price for the tight supply of oil.
Pages of NPN’s issues in 1974 addressed the petroleum price spikes at a frenzy pitch. In the January 1974 article entitled “Prices Spiral Upward in ‘Unreal’ Market,” NPN wrote “In 1973, even under restrictive government price controls, wholesale product prices pretty much across the board increased in amounts which generally surpassed total increases for the past 10 years or longer.” Some posed that either rationing or a tax plan would soon become a reality to deal with the shortage, as explained in the article “Push For Gasoline Rationing (As a Last Resort) Grows,” also in the January 1974 issue.
Growing numbers of service stations began running out of gasoline and those that did have it were forced to make customers wait in long lines. Panic and even violent incidents started to set in over the shortage. Odd-even rationing systems began, which allowed only drivers of vehicles with license plates having an odd number as the last digit to purchase gas on only the odd-numbered days of the month, vice versa with those having even-numbered license plates. Federal coupons for gasoline rationing were never actually used during the crisis.
As the supply situation did not ease, the majors became increasingly upset with the mandatory allocation program. The president of Sun Oil, Robert Sharbaugh, explained in an April 1974 NPN article entitled “Oil Copes with (and Knocks) Allocation” that, “’Under the present program…a company such as Sun is expected to purchase foreign crude at high prices, sell it to competitors at much lower prices, and charge its own customers higher prices for products to make up the difference.’”
One of the temporary effects of the oil shortage was the emphasis on environmentalism and conservation. In 1975, Congress enacted the Corporate Average Fuel Economy (CAFE) standards, mandating that new cars have a 27.5 mile per gallon fuel consumption. Also, in 1972, the Environmental Protection Agency won their campaign to end the use of the gasoline additive tetraethyl lead (TEL), although it would take until 1986 to finally phase out leaded gasoline.
Growth of Independents, Self-Serve & C-Stores:
The shortage had a number of rippling effects on the way gasoline was being marketed. The booming service station growth that happened just years before the ‘70s screeched to a halt. Scores of stations were left sitting empty, as discussed in the NPN July 1974 article “Making the Most of Surplus Stations.” The piece addressed the issue that the energy crunch had turned petroleum marketing on its head, “Instead of building new stations, the industry is planning to abandon—and wondering what to do with—many more marginal outlets. Closings and conversions—rather than construction—have top priority now.” Some of those stations were turned into other types of retail outlets and offices.
In the decade earlier, independent marketers tended to be smaller, privately-branded operations, but their business began to change. In the ‘70s, independents saw big oil abandoning the retail market. This was helped by the 1974 congressional vote to end the oil depletion allowance, which gave the majors an incentive to sell their own products through general tax breaks. With that gone, big oil saw no advantage of being in the marketing business.
Furthermore, brand loyalty made a 180 degree turn due to the oil price spikes. Consumers abandoned their favorites in search for whatever was cheapest. The NPN August 1974 article, “Plotting Marketing’s New Game Plan,” said this about the new petroleum marketplace, “Brand loyalty has all but disappeared, prices have soared, price wars have abated, promotions have ceased, station construction has ground to a halt, and free service have become harder to find.”
One of the promotional tools that all but ended was the infamous stamps program. In the news section of the March 1974 NPN, the piece “Shortage Squeezes Stamp Program” appeared. The Sperry & Hutchinson Co., maker of the S&H Green Stamps, reported “its service station business in 1973 was less than half of the $90 million it recorded in 1972.”
With rising product costs and governmental imposed price controls, retailers were desperate to find any cost-cutting measures. Many of them found that self-service was one way of doing this, which cut down costs. A number of articles in the NPN issues throughout the decade documented this trend, such as the NPN July 1977 article “The Sophisticated Self-Serve Comes of Age.”
The convenience store trend started to gain more traction during this time, with numerous NPN articles detailing the diversification to boost profits. The March 1974 piece, “Marketer Goes ‘Express Mart’ Route During Shortage,” reported on the private brand Massachusetts gasoline station Old Colony Petroleum expanding its line of products, including soda, cigarettes, ice, etc. “The project…is designed to hike station profitability during a time of product shortages,” the article stated.
Oil Crisis of 1979
Another oil crisis caused by the Iranian Revolution in 1979 shocked the nation again. While power changed hands in Iran, protests there slowed the country’s oil production. Other OPEC nations increased their production, but a panic had set in, which drove the price of petroleum to the highest it had ever gone before.
Soon, the familiar scenes of cars lining up outside of service stations were back and marketers were sent scrambling for oil supply again. In the summer of 1979, the retail price of gasoline started to edge closer and in some markets had already surpassed the dollar per gallon mark. Since costs had never before soared this high, many signs and pumps weren’t equipped to display the new prices. Operation and equipment articles in NPN started appearing like the June 1979 piece entitled “$1 Gal. ‘Gas’: What Will Marketers Do About All Those Pumps?” The situation posed a problem for some “1 million pumps that can’t register over 99.9 cents,” the article stated.
However, the margins became pretty fat for those marketers who could get supply. According to the NPN June 1979 article “Wolves at the Door: Will They Eat You Alive In the ‘80s?” it was lush times for some. “But while many had their supply problems,” according to the article regarding marketers in the late ‘70s. “There were few legitimate complaints about margins. Consumers were still showing no resistance to the skyrocketing gasoline pump postings in late April and many independents were posting with or above some major-brand outlets.”
Oil prices would continue to stay high for a short while longer, but when the panic settled, a price decline would set in, caused by reduced demand and overproduction.