Petroleum Industry

Petroleum Industry. The petroleum age began in 1859 when Edwin L. Drake's construction of the first oil well in northwestern Pennsylvania launched several oil rushes in the Appalachian fields and a refinery boom. For the rest of the nineteenth century the United States was the world's leading oil producer, refiner, consumer, and exporter. While demand for American illuminating oil expanded, continual improvements in processing petroleum, such as larger stills, pipeline gathering systems, and railroad tank cars, reduced costs.

Aggressively applying economies of processing and distribution, John D. Rockefeller's Standard Oil Trust captured about 90 percent of oil refining in the 1880s. Friendly and unfriendly takeovers, rebates and drawbacks on railroad rates, and control of pipelines paved the way for Rockefeller's monopoly. But antitrust complaints from oil‐well owners, politicians, and journalists culminated in a 1911 Supreme Court decision dissolving his empire into thirty‐four companies.

Even before the divestiture, rivals had arisen to challenge Standard Oil. In Europe and Asia, Royal Dutch Shell marketed oil from Russia and the East Indies. Around 1900, oil discoveries in the Texas Gulf Coast region, the midcontinent states, and California provided opportunities for smaller oil companies to develop into integrated corporations such as Gulf Oil, the Texas Company (Texaco), Sun, and Sinclair. While the Standard Oil subsidiaries focused on their traditional sales territories, the new “majors” competed aggressively for markets. By the 1920s, as a result of the new majors as well as the hundreds of small nonintegrated, independent refiners, oil producers, marketers, and jobbers who had entered the market, the Standard Oil companies controlled only about 40 percent of the oil industry.

A second great change occurred in the early twentieth century. With the rapid expansion of the truck, tractor, and automotive industries, gasoline replaced kerosene as the oil industry's leading product. In order to extract more gasoline from crude oil, oil companies in the 1920s developed methods of thermal cracking or refining with higher temperatures and pressure. Simultaneously, Charles F. Kettering of Dayton, Ohio, discovered that adding tetraethyl lead to gasoline improved automobile performance. By the end of the 1930s refiners employed the Houdry process of catalytic cracking to increase their yields of gasoline with higher octane.

During the Depression of the 1930s, oil companies, like other businesses, turned to government regulation to restore profits. The industry's problems had been exacerbated by overproduction following the discovery of an enormous oil field in East Texas in 1930. During the New Deal Era, state and federal regulations curtailed output from American wells, especially in new oil fields. In 1959, President Dwight D. Eisenhower bolstered these regulations by limiting oil imports. However, this system of production control broke down in the early 1970s. By then the American demand for petroleum far exceeded domestic production capacity. Despite sharp price increases by foreign oil producers in the 1970s, oil imports rose steadily, reaching 50 percent of total U.S. consumption in 1994 and leaving the country vulnerable to oil crises precipitated by developments that affected overseas producers.
See also Antitrust Legislation; Carter, Jimmy; Energy Crisis of the 1970s; Ford, Gerald.

Bibliography

Harold F. Williamson et al. , The American Petroleum Industry, 2 vols., 1963.
Daniel Yergin , The Prize, 1991.

Norman Norhauser