The History of Crude Oil

The history of crude oil supply has been dominated by the time and place of discoveries, with enormous results on the history of the 20th century. The History of Crude Oil and Supply Oil has also been dominated by a few individuals, companies, and nations, with greed, superb intelligence, and unbelievable stupidity.

The modern oil era began in northwest Pennsylvania in the mid-19th century, as shallow fields were tapped.

The early days of the oil industry were characterised by boom and bust, as new discoveries first overwhelmed demand, then lagged behind it. Prices fell from $10 a barrel in January 1861 to 10¢ a barrel in December 1861, but were up to $7.25 a barrel again by September 1863, down to $2.40 in 1867. Fortunes were made and lost in boom towns and stock speculations that rivalled any in the gold industry.

The innovation that allowed some control over the chaos was the oil pipeline. Barrels (real barrels, made of oak) were expensive, sometimes worth more than the oil they contained. They were expensive to transport on wagons, too. By 1866, pipelines, made of wood at first, had been built to the major producing fields, transporting oil to railheads where tanker cars could be filled. After that, there was only one real choice: the oil flowed to the nearest industrial city for refining, Cleveland, Ohio.

It was the genius of John D. Rockefeller that found a way to take advantage of this situation, which was merely a matter of simple geography. The oil fields were scattered in rough country, owned by small-time entrepreneurs, and new discoveries were unpredictable in location and size. They were, however, likely to occur in the same region, and they would be connected by pipelines to the existing rail network, and funneled to Cleveland. After refining, the kerosene was marketed nation-wide.

Rockefeller reasoned that the way to control the oil industry was within the transportation and refining section. In particular, refineries were comparatively long-term investments. At the age of 20, Rockefeller had entered business just as the Civil War began, and made a lot of money supplying the Army with wheat, salt, and pork.

In 1863 Cleveland was connected with the Pennsylvania oilfields by rail, and Rockefeller and a partner opened an oil refinery in Cleveland. In 1866 he bought out his partner, and at the age of 26 owned the largest refinery in the city. Using the size of his shipments to negotiate low prices for railroad transport, outcompeting his rivals for price and quality, Rockefeller and his Standard Oil Company became the largest oil company in North America, amalgamating and controlling the refining side of the industry. By 1879 Standard Oil controlled 90% of the refining capacity in the United States, and all the pipelines flowing out of the Pennsylvania oilfields.

In the 1880s, Standard moved into oilfield production too. By 1890, it was producing or buying over 80% of the oil produced in the United States, and refining and selling it. Standard was exporting kerosene, too: half of the kerosene it produced was exported, mainly to Europe, and kerosene was the fourth-largest American export commodity.

At the end of the century, the Standard Oil Trust controlled the oil industry of the Americas, while Shell was a major player in much of the rest of the world.

Three major events altered this situation: in 1901 the great Spindletop gusher brought Texas oil into the picture, eventually bringing Gulf and Texaco into the big leagues; in 1911 the US Government used anti-trust legislation to break up the Standard company; and the World War of 1914 to 1918 brought to everyone's attention the fact that petroleum was now vital to waging and winning wars.

The scene was set for oil to dominate much economic, political, and military thinking, and that situation continues today.

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