Consolidation of the refineries

7.4 Consolidation of the refineries

We mean to secure the entire
refining business in the world

Between 1875 and 1878, Rockefeller travels through the US in a campaign to make selected refiners join the Standard. To the interested refiners, he explained in the greatest secret how they were about to gradually control every refinery in the US, and become the only shippers, dictating their terms to the railroads. The Standard Oil's economies of scale and incredible profits were shown to them, and they were promised wealth beyond their wildest dreams if they cooperated with the Standard with Rockefeller at the steering wheel. He succeeded in uniting the 15 biggest refiners in the country, dominating 80 % of the total capacity.

Another method was used with smaller refineries. He first tried to buy them, often offering no more than 40% of the invested capital. Those who refused eventually yielded to the enormous pressures of many kinds. For example, a lubricant producer in Cleveland had the Standard Oil as his only supplier of distilling waste, his raw material. One day, Rockefeller stopped his supply totally, and soon afterwards bought the factory for a song to his crying owner.

Rockefeller's Arguments to the Refiners

«Three years ago I took over the Cleveland refineries. I have managed them so that to-day I pay a profit to nobody. I do my own buying I make my own acid and barrels, I control the New York terminals of both the Erie and Central roads, and ship such quantities that the railroads give me better rates than they do any other shipper. In 1873 I shipped over 700'000 barrels by the Central, and my profit on my capitalization,$ 2'500'000, was over $ 1'000'000. This was the result of combination in one city. ... Le us become the nucleus of private company which gradually shall acquire control of all refineries everywhere, become the only shippers, and consequently the master of the railroads in the matter of freight rates.»

Others gave in after heavy underselling from the Standard on their markets. Because when Mr. Rockefeller undersold, he went on day after day, week after week, month after month until there was nothing left of his competitors. Nobody had sufficient reserves to successfully resist a price war with the Standard Oil.

If the preferential rebates from the railroads, the cutting off of the crude oil supply and the price war were not sufficient, other methods were used. As said above, a mechanic of the Vacuum Oil Company in Buffalo was bribed to tamper a still. The sabotage worked fine and the refinery exploded, but only years later did the repenting mechanic clear his conscience by telling the story. This cast some light on the muscled methods of the Standard.

The pool appeared natural to everybody in the industry, with such a destructive competition

«How much did you make last year? Not a cent? Are you Making anything now? Well, what do you propose to do? Sit here and lose what capital You have got in the business? There is only one way to make any money in a business like the oil business and that is to have a pool.»

Old and poorly placed refineries were shut off and the most efficient enlarged. All the buying, the negotiations with the railroads and the selling of the finished substances were under Rockefeller's management.

The consolidation process went on, par ruse ou par force, so that in 1878 a superstitious fear of resisting to Rockefeller and his men appeared in the Oil Regions, making life unbearable for the independents.

In 1879, after intense juridical battles, the jury of the Clarion county declared John D. Rockefeller and several of his directors of conspiration for gaining monopoly in the buying and selling crude oil, so as to make it impossible for other people to do the same business profitably.

Rockefeller proposed an out-of-court settlement. The producers accepted bitterly, asking for (1) full stop of the preferential rebate system (2) stopping of all discrimination for pipeline transport (3) a sum to pay the lawyers fees. Rockefeller had won again, profiting from the weak waiting capacity of the producers and of their difficulty to unite except when in major difficulties.

He once again escaped the public wrath.