Outside of the Standard organization, there are only about seventy-five refineries, most of them small, whose total annual consumption of crude oil is considerably less than that of the two Standard plants at Bayonne, New Jersey, and Philadelphia.
Nearly a score of these so-called independent oper ators are independent only in name. They are, in fact, so absolutely dependant on Standard pipe lines for their supply of crude oil that if the Standard so desires, they can be rendered quite incapable of presenting any effective competition. Actual competition of any kind, therefore is pos sible only on the part of some fifty-odd small concerns scattered about the country and repre senting perhaps as much as a sixth of the whole industry.
The first step toward concentration was largely a natural outcome of the character of the industry itself, especially as it existed under the unstable conditions prevailing from 1860 to 1870. The opening of Drake's well had marked the doom of the coal and shale oil industry and forced the man ufacturers to change their plants over to petroleum refining. For a time these converted plants and the new establishments started in the oil regions were fully capable of handling all the oil produced. But the oil developments ushered in by the first deep wells yielded greater quantities than had ever been dreamed of before. This unexpected supply and the rapidly increasing demand in all quarters for the refined products soon overtaxed the powers of the existing refineries. Small con cerns were the prevalent type at that time, and their limited resources rendered them incapable of adopting the improvements needed to meet the new demands of the industry. Large amounts of capital were necessary to erect and operate plants of great capacity ; to improve and cheapen the ex isting processes of refining, and to profit from var ious economies in handling, such as the building of spur tracks from refineries to the railroads, con struction of pipe lines or control of tank-car serv ice. Such advantages could be secured only by some powerful single concern or through the com bination of several smaller interests.
A small group of refiners in Cleveland, Ohio, were among the first to recognize this condition of the industry and to see the latent possibilities af forded by a combination of interests. The inception of the idea is usually credited to John D. Rocke feller, who had begun oil refining in 1865, and has long been the most prominent figure in the oil industry of the world. The first move toward com bination was made about 1867, when the firm of " Rockefeller, Andrews and Flagler " took over the group of refineries in which Rockefeller, his brother William, Henry M. Flagler, Samuel Andrews and Stephen Harkness were interested. All these re fineries were located in Cleveland, Ohio, where a score of other concerns were operating independ ently, the object of the Rockefeller combination being mainly to do a larger business than their local rivals by uniting their efforts. At first the firm merely expanded its own business, without at tempting to absorb others or engaging at all in the production or transportation of oil. By stick ing to this policy the new firm forged ahead so steadily that within two years it was by far the strongest concern in its locality.
The time was now ripe for the next move to ward expansion. It came in 1870, when the part nership was changed to a corporation with $1,000, 000 capital, under the name of the " Standard Oil Company of Ohio." This was the first appearance of the name which has since become familiar in every household in the country. It is estimated that there were then fully 250 refineries scattered through the states from Ohio to the coast, with a total capacity of about 16,000 barrels a day. The Standard works at the time of incorporation were capable of handling about 600 barrels daily, thus making them one of the most important individ ual establishments, but probably not much larger than some of their chief rivals. The reorganiza tion, however, was epoch making ; it marked the beginning of the active campaign of expansion and for control of the industry, which has continued unabated down to the present time.