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The Price of Oil

refining, barrels, cents, chart, business and margin

THE PRICE OF OIL quite possible that in keeping the attention fixed so long on Mr. Rockefeller's oil campaign the reader has forgotten the reason why it was undertaken. The reason was made clear enough at the start by Mr. Rocke feller himself. He and his colleagues went into their first venture, the South Improvement Company, not simply be cause it was a quick and effective way of putting everybody but themselves out of the refining business, but because, every body but themselves being put out, they could control the output of oil and put up its price. "There is no man in this country who would not quietly and calmly say that we ought to have a better price for these goods," the secretary of the South Improvement Company told the Congressional Com mittee which examined him when it objected to a combina tion for raising prices.

Four years after the failure of the first great scheme, a similar one went into effect. What was its object? J. J. Vandergrift, one of the directors of the Standard Oil Com pany at that time, questioned once under oath as to what they meant to do, said: "Simply to hold up the price of oil —to get all we can for it." Nobody pretended anything else at the time. "The refiners and shippers who are in the association intend there shall be no competition." "It is a struggle for a margin." "The scope of the association is an attempt to control the refining of oil, with the ulti mate purpose of advancing its price and reaping a rich harvest in profits." These are some of the comments of the contemporary press. The published interviews with the lead ers confirm these opinions. Mr. Rockefeller, always discreet in his remarks, denied that the scheme was to make a "cor ner" in oil; it was "to protect the oil capital against specu lation and to regulate prices." H. H. Rogers was more explicit: "The price of oil to-day is fifteen cents per gallon" (March, 1875). "The proposed allotment of business would probably advance the price to twenty cents. . . . Oil to yield a fair profit should be sold for twenty-five cents per gallon."

What was the exact status of this refining business out of which it was necessary to make more in the year 1871, when the first scheme to control it was hatched? The simplest and safest way to study this question is by means of the chart of prices on pages 194 and 195.* On this chart the line A shows the variation in the average monthly price, per gallon, of export oil in barrels in New York from 1866 to June r, 1904. The line B shows the average monthly price, per gal lon, of crude oil in bulk at the wells. A glance at the chart will show the difference or margin between the two prices. It is out of this difference that the refiner must pay the cost of transporting, manufacturing, barrelling and marketing his product, and get his profits. Now in i866, the year after Mr. Rockefeller first went into business, he had, as this chart shows, an average annual difference of 35 cents a gal lon between what he paid for his oil and what he sold it for. In 1867 he had from 26% to zo cents; in i868, from zo to 22%; in 1869, from 21 to 18; in 1870, from 20 to 15.* There were many reasons why this margin fell so enor mously in these years. All of the refiners' expenses had rapidly decreased. In 1866 but two railroads came into the oil coun try; by 1872 there were four connections, and freights fell in consequence. In 1866 carrying oil from the wells by pipe lines was first practised with success, by 1872 all oil was gath ered by pipes, thus saving the tedious and expensive opera tions of teaming. Tank-cars for carrying crude oil in bulk had replaced barrels and rack-cars. The iron tank, holding 20,000 barrels, was used instead of the wooden tank holding i,000 barrels. On every side there had been economies, and because of them the margin had fallen. But not only were the expenses coming down ; so were the profits. The money which had been made in refining oil had led to a rapid multi plication of refineries at all the centres. In 1872 there was a daily refining capacity of about 46,00o barrels in the coun