Why Rockefeller cornered the oil industry

In the 1880s Oildorado was booming and everyone and their mother was trying to get in 🛢️.

The oil boom was promising massive wealth 💸.

Greed and excess caused chaos 🌬️.

 🔥 consistently breaking out in the oil field did not stop the oil rush that was taking place. One incident occurred where 19 people died from a fire on one of the more famous wells. 19 people! 🤯

Rockefeller was also shocked 😨 at how much greed he saw‼️ He began to take notes 📝 and carefully studied the industry.

He studied its inefficiencies. That’s 🔑!

Rockefeller became a “sponge” 🧽 (that was his nickname amongst the other oilmen) and traveled across all of Pennsylvania to learn more about the industry.

He was sort of like an insurgent. The oil refiners were handing over all of their secrets not suspecting what Rockefeller was up to.

All of this brought Rockefeller to the conclusion that competition was an enemy of the oil business, NOT its ally.

Rockefeller HATED the gambling 🎰 nature of the oilmen. The gambling was affecting Rockefeller’s business financially 💵.

Because there was so much competition, and so many wells spewing oil the supply was outpacing demand. Driving prices down ⬇️.

You would think this would slow down oilmen, but it only sped them up. It reminds me of the Warren Buffet quote - “be greedy when others are fearful and fearful when others are greedy”. Before Buffet was touted for this famous quote, Rockefeller embodied it.

Rockefeller, the man with “The Ledger”, hated his profit margins being vulnerable to the price swings of the oil market.

This sparked Rockefeller’s idea to create order in the chaos of the oil industry.

His plan was based on crude because no one wanted to touch it. Rockefeller knew that the upstream prospectors only saw value in it after the downstream refiners refined it.

He saw that the refiners had all the advantage.

Rockefeller came up with the idea to band together a group of refiners. He did this to create a choke point for crude.

From there Rockefeller basically took the industry by force 🦍. Commanding every competitor to join him or face the fear of being crushed.

His first step was actually to create the company - Standard Oil Company.

He used it to consolidate all of the oil refineries he would swallow up.

Next, instead of paying himself, he flowed all of his profits back into the company to create a hedge against the fluctuating oil prices 🏷️.

This meant that when the oil markets were collapsing and everyone was fearful, Rockefeller had the cash reserves to swoop in and purchase his competitors at a discount. HE WAS LITERALLY BUYING THE COMPANIES OUT!

Those he couldn’t buy (because profits on refined crude were low) he CRUSHED 💥 with price wars.

He would create artificial shortages to squeeze his competitors. This man would literally create chaos to win 😮‍💨. Sheesh!

Rockefeller used other tactics such as arranging kickbacks with railroad owners, undercutting the price of rivals, offering territorial deals, and forcing shops and grocers to only sell Standard’s products.

Rockefeller was relentless. He would not stop until Standard Oil was THE ONLY oil company.

By the end of the 1880s Standard Oil was refining 80 percent of the world’s oil. It was also pumping crude from its own fields.

Rockefeller had this to say about his domination:

Ruthless…

Rockefeller had dominated the oil industry.

But little did he know that fierce competition would arise in the least unlikely fashion…