The History of Petroleum and Standard Oil

John Davison Rockefeller was born on July 8, 1839, to parents William Avery Rockefeller and Elisa Davison. He would be remembered not only for amassing a grand fortune, making him the world's first billionaire, but also for his enduring legacy a century after his death. In this, the roadmap of corporate behavior driven by Standard Oil, the life's work and source of great prosperity for him, played a significant role. Many also remember his philanthropy, Baptist faith, and devotion to his wife. As you can see, John Davison Rockefeller was a complex individual.

Growing up in a small town in New York, young John Rockefeller moved to a Cleveland suburb at the age of 14. Given his challenging childhood and early years marked by near poverty, Rockefeller's strong personality and ambition were not surprising. He left high school and completed a six-month business course at a local college in record time. He worked briefly as a clerk at a local shipping company. Later, at the age of 19, Rockefeller and his neighbor founded the company Clark & Rockefeller. The Civil War would prove beneficial for the commercial interests at the heart of this story, as the war led to a significant expansion of shipments in the Ohio port city. This fortuitously timed the establishment of the fledgling company. At that time, like many who had the means, John also hired someone to fight in his place for the unity of the nation.

Clark & Rockefeller and the Emergence of Standard Oil 

Clark and Rockefeller were doing well. As a result, they were invited to finance a new refinery called Excelsior Works, built by a British immigrant, in Cleveland. In 1863, Clark, Andrews & Co was established. However, in 1865, Rockefeller took over the operation. Later, Rockefeller joined the company renamed Andrews and Flagler. Due to Rockefeller's honesty and meticulous record-keeping, local bankers were inclined to lend him money. While everything was going well, Rockefeller, Andrews, and Flagler aggressively expanded. As a result, on January 10, 1870, the partnership dissolved, and Standard Oil Company, an incorporated company in Ohio, was established, with John D. Rockefeller as its president.

By this time, Standard Oil already controlled 10% of all shipping depots, in addition to the emerging petroleum refinery trade in America. They even committed to manufacturing their own barrels and tank cars. However, for the highly competitive Rockefeller, the first order of business was to eliminate other Cleveland refineries.

SIC and the Growth of Standard Oil 

SIC, the South Improvement Company, was an alliance between the most powerful railroads in the oil country, such as Pennsylvania, New York Central, and Erie railroads, and several refineries, particularly Standard Oil. SIC operated under a special charter created by the Pennsylvania legislature. In practice, the company would significantly increase shipping rates by rail. However, SIC further intensified competition by offering even larger discounts to its refineries. They even went so far as to offer a bonus to shipments from other refineries to Cleveland, competing with Standard. Naturally, the railroads also enjoyed substantial and steady business from Standard. For non-SIC shippers, this effect resulted in overnight doubling of freight rates. As a result of this process, Rockefeller managed to acquire 22 out of 26 Cleveland competitors in a little over a month.

In the early days, Pennsylvania was the only known source of oil in the world. Today, that might seem amusing, but at the time, it was not an inconsequential matter. As observed by Ron Chernow in "Titan," if oil had been found in scattered locations after the Civil War, Standard Oil could not have achieved such extensive control over petroleum. Confining oil to the remote corner of northwest Pennsylvania made it sensitive to monopoly control with the advent of pipelines. Pipelines united Pennsylvania wells into a single network. Ultimately, Standard Oil gained control over the entire flow of oil through a single valve.

By the mid-1880s, 70% of American petroleum was being exported abroad, making petroleum America's fourth-largest export. However, Standard Oil had even grander ambitions.