1870
The US Civil War triggers one of the first oil booms. During this time, John D. Rockefeller founds the Standard Oil Company. Within a few years, through an aggressive business strategy, he dominates the oil market, from production and processing to transport and logistics.
“Competition is a sin.”
—John D. Rockefeller
The production of petroleum from coal or crude oil as an inexpensive alternative to whale oil for lamp fuel is commonly regarded as the beginning of the modern petroleum industry. On August 27, 1859, Colonel Edwin Drake discovered a lucrative deposit of crude oil near Titusville, Pennsylvania. The onset of the American Civil War two years later sparked the first oil boom in that state. The price of oil rose to more than 100 USD per barrel (measured in today’s prices). Drilling rigs soon spread across farms in northwestern Pennsylvania, as hundreds of small refineries were created near the oil wells and along the transport routes to Pittsburgh and Cleveland, Ohio, cities that were home to major railroad crossroads: The New York Central and Erie Railroad led to Cleveland, while Pittsburgh served as an important east-west junction on the Pennsylvania Railroad. The majority of freight on these railways still consisted of grains and industrial goods, but the volume of oil products was growing rapidly.
In 1863 John Davison Rockefeller, age 24, founded a small oil refinery in Cleveland together with his brother William. The son of penniless German immigrants, John worked as a dishwasher during his school years and graduated as an accountant. Rockefeller’s company was successful and prospered, despite fluctuations in the market. The oil boom had led to a spike in production, and the price of the commodity fell from 20 USD per barrel in 1861 to only 10 US cents. In 1866, one year after the end of Civil War, however, the price had risen again to more than 1.50 USD.
Figure 2. Crude oil prices 1861–2018, in USD/barrel (real prices of 2015). Data: BP Statistical Review of Energy, 2019.
With William, Rockefeller founded a second refinery in 1866, then, in 1870, he reorganized his company, naming it the Standard Oil Company. A year later, Rockefeller and other refinery owners formed an alliance to obtain discounts from railway operators. In addition, this alliance was responsible for railway operators raising prices for competitors, which led to an oil war in 1872.
At the end of that year, Rockefeller took over the presidency of the National Refiners Association, which represented 80 percent of all American refineries. He would continue to aggressively grow Standard Oil, and by 1873 he had managed to acquire or to control almost all refineries in Pennsylvania.
From Crude Oil to the Plastic-Wrapped Cucumber at Your Supermarket
A refinery splits crude oil into its various components, such as light and heavy fuel oil, kerosene, and gasoline. With additional steps, a variety of alkanes and alkenes can also be produced from petroleum. Petroleum remained the most important use of crude oil until the rapid spread of automobiles in the 1920s. Although Henry Ford had intended ethanol to fuel his cars, the Rockefeller family, as founders of the Standard Oil Company, pushed for gasoline to power automobiles and succeeded.
Today, oil is still by far the most important source of energy, at the core of every industrial society, and the base for numerous chemical products, such as fertilizers, plastics, and paints. Although three-quarters of crude oil production is used in transportation, it will take e-mobility further decades at least to challenge the supremacy of crude oil.
Between 1875 and 1878, Rockefeller traveled throughout America to convince the owners of the 15 largest refineries to become part of his Standard Oil Company. Smaller companies had to follow suit or perish: For example, the plant of the Vacuum Oil Company, founded in 1866, went up in flames. Other entrepreneurs sold Rockefeller their companies for well below half of their market value. As early as 1882, Standard Oil controlled more than 90 percent of the refinery business in the United States.
Next, the company turned to pipeline and distribution networks. Rockefeller built his own sales channels, forcing other trading networks out of the market. In late 1882, the National Petroleum Exchange opened in New York to facilitate the trading of oil futures.
In the end, Standard Oil had a hold over virtually the whole crude oil value chain in the United States—from oil production to processing, transport, and logistics—and began to extend its dominance to the global oil market as well.
Accumulating a fortune of around 900 million USD by 1913, Rockefeller represented the American Dream, the richest man of all time.
By transforming his enterprise, Rockefeller was able to postpone the destruction of his empire. But his aggressive company strategy eventually prompted the first antimonopoly legislation in the United States. In 1911, the Supreme Court ordered the dismantling of Standard Oil. As a result, the company’s share price fell like a stone. Rockefeller, nevertheless, was able to buy back large quantities of the stock, which only increased his fortune in the years that followed. World War I, increasing motorization, and advances in the industrialization process all resulted in a rapid increase in the demand for oil.
Eventually Standard Oil was broken up into 34 individual companies, from which today’s ExxonMobil and Chevron have emerged. Other sections of the original firm were liquidated over time or were absorbed by other oil and gas companies.
Back in 1913, the total wealth of John D. Rockefeller was estimated at 900 million USD, the equivalent of 300 billion USD today. This is more than twice the private wealth of Jeff Bezos, founder and CEO of Amazon and, according to Forbes, the wealthiest man in the world today (before his divorce).
The son of John D. Rockefeller, Nelson, almost became president of the United States, but instead served as vice president from 1974 to 1977. David Rockefeller, the last grandson of John D. Rockefeller, died in 2017. Even today, the name Rockefeller is a symbol of vast wealth and also of philanthropy.
Key Takeaways
•The American Civil War fueled the first crude oil boom in history. Prices in 1861 soared above 100 USD (in today’s currency).
•John D. Rockefeller founded the Standard Oil Company, a corporation that not only came to control the US market for crude oil but also dominated the global market.
•The rise of the automotive industry and industrialization in general propelled all developing countries into the oil age.
•John D. Rockefeller personified the American Dream par excellence, rising from a dishwasher to a multibillionaire. Even in 2019 his surname remains a synonym for immeasurable wealth.
•Though Standard Oil was broken up, successor companies like Exxon-Mobil and Chevron are still operating today.