John D. Rockefeller founded Standard Oil, a leading oil company, in 1865.
He started with partner Maurice in the produce commission business and found success during the Civil War. The oil mining field in Pennsylvania led to a drop in oil prices, which prompted Rockefeller to focus on refining oil. In 1863, he built a refinery with Maurice, who sold his shares to Rockefeller in 1865. This marked the turning point for Rockefeller and his company, as they were now known for their efficient refining process.
To boost profits and destroy competitors,
Rockefeller created secret deals with the Erie Canal and the New York Central Railroad. These deals helped Standard Oil’s kerosene price drop from 58 to 26 cents from 1865 to 1870. Rockefeller negotiated with the Erie for a 75% discount in transportation and negotiated for a daily order of 60 carloads with the New York Central Railroad to pay $1.65 per barrel shipped.
However, the Pennsylvania railroad and its competitors faced a disadvantage when trying to revive their business in Cleveland. John’s railroad rebates, or discounts, were kept a secret, making competitors pay the full price to these railroad companies, leading to a price war. As more mining oil portions increased, the situation collapsed, leading to John’s creation of the South Improvement Company.
In 1872, Rockefeller joined the South Improvement Company,
which would have allowed him to receive rebates for shipping and drawbacks on oil his competitors shipped. However, when this deal became known, competitors convinced the Pennsylvania Legislature to revoke its charter, and no oil was ever shipped under this arrangement.
John’s deal was designed to be devastating for his competition, as he would receive a 50% rebate from the cost of their shipments whenever anyone outside of this secret alliance transported kerosene through these railroads. This strategy absorbed or destroyed most of its competition in Cleveland and throughout the northeastern United States.
After black Tuesday,
many competitors of John became bankrupt, and John decided to buy those companies to stay in his position. By 1865, Standard Oil was the largest and most profitable organization in the world, moving to Manhattan to house new employees.
John’s vast empire included 20,000 domestic wells, 4,000 miles of pipeline, 5,000 tank cars, and over 100,000 employees.
He wanted to control the entire oil industry himself, turning Standard Oil into its supplier, transporter, producer, and retailer. In 1911, the US government broke up Standard Oil, forming two major companies: Esso (Exxon) and Socony (Mobil), which later merged to become ExxonMobil.
