Oil

The petroleum industry originated in America in 1859 when Edwin L. Drake drilled the first successful oil well at Titusville, Pennsylvania. The small amounts of petroleum that previously had seeped to the surface were bottled for medicinal purposes. Drake invented (but neglected to patent) the drive pipe that is still used today. He also neglected to secure oil leases on adjourning lands and thus made very little from his momentous discovery. Others rushed in, however, for its impact was instantaneous. Petroleum could be easily distilled (refined) into superior lubricants and especially into kerosene, which when burned in a lamp provided superior lighting and was far cheaper than whale oil. The crude oil initially was transported in barrels by wagons and barges to railroads, but railroads extended their lines into the western Pennsylvania oil fields and by 1865 had developed tank cars. A short pipeline was constructed in that same year, and by 1881 a long-distance pipeline connected the oil region with the eastern seaboard. By 1870,

5.3  million barrels, of crude oil were produced; in 1880,

26.3  million barrels; in 1890, 45.8 million barrels; and in 1900, 63.6 million barrels. Pennsylvania remained a significant producer of petroleum throughout the Gilded Age, but in the 1880s both Ohio and West Virginia were in production, and in the 1890s Wyoming, California, and Texas had oil wells. The great Spindletop Strike in Texas, however, did not come until 1901.

Initially chaotic, the oil industry was monopolized quickly by John D. Rockefeller and his associates. Indeed, it was more completely monopolized in the Gilded Age than when major oil fields outside Pennsylvania and the Old Northwest subsequently opened up. In 1865 Rockefeller began refining oil in Cleveland, Ohio, formed a partnership with other refiners in 1867, and in 1868, to compete in eastern markets, secured a rebate (reduced freight rate) from the New York Central Railroad. In 1870 his associates and others formed the Standard Oil Company of Ohio, bought out oil companies in Cleveland and elsewhere, and controlled the largest refineries in the world, enabling Rockefeller to boast, “The oil business is mine.”

Building upon his great volume, Rockefeller secured further rebates with the object of destroying his competitors. In 1872, with Thomas A. Scott of the Pennsylvania Railroad, Rockefeller revived the South Improvement Company to allocate the oil shipments of its 13 members (10 of whom were in the Standard group) among the New York Central, Erie, and Pennsylvania Railroads. The railroads doubled their oil freight rates but allowed the 13 members a 50-percent rebate plus drawbacks that would give 50 percent of their competitors’ freight rates to the South Improvement Company. Facing ruin, independents sold out to Rockefeller. The outcry against the South Improvement Company was such that the Pennsylvania legislature withdrew its charter, but Rockefeller continued to try to eliminate competition by rebates, underselling, creating tank-car and barrel shortages, and forming pools to fix prices and control production. By 1878 Rockefeller controlled well over 90 percent of the nation’s refining capacity.

Pools enlarged the Standard group, but they were unwieldy and, as Rockefeller said, “ropes of sand.” In 1882 the 41 stockholders of the Standard Oil Company signed a trust agreement that placed control of all the Standard group into the hands of nine trustees. This arrangement was so obviously monopolistic that the state of Ohio dissolved it in 1892. The Standard group’s monopoly, however, was hardly shaken, since it remained intact and in 1898 refined 83.7 percent of the nation’s oil. It also reorganized. The Standard trustees had already secured a charter for Standard Oil of New Jersey, which in 1899 was converted into a holding company by increasing its stock from $10 million to $110 million and exchanging this stock for the stock of the 40 members of the Standard group. Significantly its board of directors, headed by Rockefeller, was essentially the same group of men who had dominated the oil industry since the 1870s.

Oil well in California, 1898 (Library of Congress)

Further reading: Ralph W. Hidy and Muriel E. Hidy, Pioneering in Big Business, 1882-1911: History of the Standard Oil Company (New Jersey) (New York: Harper and Brothers, 1955); Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: The Age of Illumination, 1859-1899 (Evanston, Ill.: Northwestern University Press, 1959).