Now, the Standard Oil Company were not selling oil at a loss at this time out of love for the consumers, although they made enough money in 1894 on by-products and domestic oil to have done so — their net earnings were over $15,000,000 in 1894, and they reckoned an increase in net value of property of over $4,000,000 — they were fighting Russian oil and the independent combination started in 1889. By 1892 this combination was in active operation. The extent of this movement was described in the last chapter of this narrative. At the same time certain large producers in the McDonald oil field built a pipe-line from Pittsburg to Baltimore, the Crescent Line, and began to ship crude oil to France in great quantities. It looked as if both combinations meant to do business, and the Standard set out to get them out of the way. One method they took was to prevent the refiners in the combination making any money on export oil.

The extent to which cutting was carried on for two years, beginning with the fall of 1892, has been referred to in the last chapter, but is perhaps worth repeating in this connection. In January of 1892 crude oil was selling at 53-1/2 cents a barrel at the wells, and refined oil for export at 5.33 cents a gallon in barrels. Throughout the year the price of crude advanced, until in December it was 78-3/8 cents. Refined, on the contrary, fell, and it was actually 18 points lower in December than it had been twelve months before. Throughout 1894 the Standard kept refined oil down; the average price of the year was 5.19 cents a gallon, in face of an average crude market of 83-3/4 cents, lower than in January, 1893, with crude at 53-1/2 cents a barrel.

After two years they gave it up. It was too expensive. The Crescent Line sold to them, but the other independents were too plucky. They had lost money for two years, but they were still hanging on like grim death, and the Standard concluded to concentrate their attacks on other points of the combination rather than on this export market where it was costing them so much.

About the end of 1894 the depression of export oil was abandoned, as the chart shows. Notice that from 1895 to 1898 the margin remained at about four cents, that in 1900 it rose to six cents, and from that time until June, 1904, it swung between four and a half and five. The increasing competition in Western Europe of independent American oils, and the rapid rise since 1895, particularly of Russian oil, are what has kept this margin down. It is doubtful, such is the growing strength of these various competitive forces, if the Standard Oil Trust will ever be able to put up the margin on export oils. If there were only the American independents to reckon with, a compromise might be possible, but Russia, Burmah and Sumatra are all in the game. By 1896 Russia was exporting 210,000,000 gallons of petroleum products (America in that year exported over 931,000,000 gallons), and these products were going to nearly every part of Europe and Asia. They began to cut heavily into the trade of the Standard in China, India, Great Britain and France. By 1899 the exports of Russian oil were over 347,000,000 gallons; in 1901, over 428,000,000 gallons. In China, India, and Great Britain particularly, has the Russian competition increased. While at one time the Standard Oil Company had almost the entire oil trade at the port of Calcutta, last year, 1903, out of 91,500,000 gallons imported, only about 6,500,000 gallons were of American oil. In China, Sumatra oil is now ahead of American, the report for 1903 being: American, 31,060,527 gallons; Sumatra, 39,859,508.

For the Standard there is good profit in this margin of four and a half cents for export oil. The expenses the margin must cover are the transportation of the crude from the wells to New York, the cost of manufacture, the barrel and the loading. For twenty-five years the published charge of the Standard Oil Company for gathering oil from the wells has been twenty cents a barrel. The charge for bringing it to New York has been forty cents, a little less than one and a half cents a gallon. It costs, by rough calculation, one-half a cent to make the oil and load it. The barrel is usually reckoned at two and a half cents. Here are four and a half cents for expenses the entire margin. Where the Standard has the advantage is in its ownership of oil transportation. A common carrier gathering and transporting in 1902 all but perhaps 10,000 barrels of the 150,000 barrels' daily production of Eastern oil, the service for which the outsider pays sixty cents, costs it from ten to twelve cents at the most liberal estimate. Here is over a cent saved on a gallon, and a cent saved, where millions of gallons are in question, makes not only great profits, but keeps down competition. The refiner who to-day must pay the Standard rates for transportation cannot compete in export oil with them. In January of 1904, when the chart shows the margin to have been about four and three-quarter cents, an independent refiner in the state of Ohio, dependent on the Standard for oil, gave the writer a detailed statement of costs and selling prices of products in his refinery. According to his statement he lost one and three-fifth cents on his export oil. He was forced, of course, to pay Standard transportation prices for crude and railroad charges for refined from Ohio to New York harbour. [152]

That there would have been such a transportation situation to-day had it not been for the discrimination by the railways, which threw the pipes into the Standard's hands in the first place, and the long story of aggression by which the Standard has kept out rival pipes, and so been able for twenty-five years to sustain the price for transportation, is of course evident. To-day, as thirty years ago, it is transportation advantages, unfairly won, which give the Standard Oil Company its hold. It is not only on transportation that the Standard to-day has great advantages over the independent refiner in the export market. As said at the beginning of this chapter, the Standard Oil Company "makes the price of refined oil" within strict limits. Of course, making the market, it has all the advantages of the "inside track." Its transactions can be carried on in anticipation of the rise or fall. For instance, in January of 1904, when there were strong fluctuations in the water-white (150 degrees test) prices, the agent of an independent refiner, who was in Wall Street trying to keep track of markets for out-of-town competitors, reported the price as 9.20 cents a gallon. The refiners' goods were refused on the ground that this was above the market. The Standard Oil export man and a broker who worked with the company were consulted. The market was 9.20. Further investigation, however, showed that at headquarters the figure given out privately was 8.70 cents. The disadvantage of the outsider in disposing of his goods is obvious. The Standard makes the official market, and undersells it. The situation seems to be the same in practice as that described by Mr. Welch, in 1880, though now the fiction of a committee of brokers has been done away with. Of course there is nothing else to be expected when one body of men control a market.

Thus far the illustrations of Mr. Rockefeller's use of his power over the oil market have been drawn from export oil. It is the only market for which "official" figures can be obtained for the entire period, and it is the market usually quoted in studying the movement of prices. It is of this grade of oil that the largest percentage of product is obtained in distilling petroleum. For instance, in distilling Pennsylvania crude, fifty-two per cent. is standard-white or export oil, twenty-two per cent. water-white — the higher grade commonly used in this country — thirteen per cent. naphtha, ten per cent. tar, three per cent. loss. The runs vary with different oils, and different refiners turn out different products. The water-white oils, while they cost the same to produce, sell from two to three cents higher. The naphtha costs the same to make as export oil, but sells at a higher price, and many refiners have pet brands, for which, through some marketing trick, they get a fancy price. The Standard Oil Company has a great number of fancy brands of both illuminating and lubricating oils, for which they get large prices — although often the oil itself comes from the same barrels as the ordinary grade. Now it is from the extra price obtained from naphtha, water-white, fancy brands, and by-products that the independent refiner makes up for his loss on export oil, and the Standard Oil Trust raises its dividends to forty-eight per cent. The independent refiner quoted above, who in January of 1904 lost 1-3/8 cents on export oil, made enough on other products to clear 8.3 cents a barrel on his output eighty-three dollars a day clear on a refinery of 1,000 barrels capacity, which represents an investment of $150,000.

TYPICAL OIL FARM OF THE EARLY DAYS

Turn now to the price of domestic oil, and examine the chart to see if we have fared as well as the exporters. The line C on the chart represents the price per gallon in New York City of 150° water-white oil in barrels from the beginning of 1881 to June, 1904. [153] The figures used are those of the Oil, Paint and Drug Reporter. A glance at the chart is enough to show that the home market has suffered more violent, if less frequent, fluctuations than the export market. A suggestive observation for the consumer is the effect of a rise in crude on the price of domestic oil. The refined line usually rises two or three points to every one of the crude line. It is interesting to note, too, how frequently high domestic prices are made to offset low export prices; thus, in 1889, when the Standard was holding export oil low to fight competition in Europe, it kept up domestic oil. The same thing is happening to-day. We are helping pay for the Standard's fight with Russian, Roumanian and Asiatic oils. But this line, while it shows what the New York trade has paid, is a poor guide for the country as a whole. Domestic oil, indeed, has no regular price. Go back as far as anything like trustworthy documents exist, and we find the most astonishing vagaries, even in the same state. For instance, in a table presented to a Congressional Committee in 1888, and compiled from answers to letters sent out by George Rice, the price of 110° oil in barrels in Texas ranged from 10 to 20 cents; in Arkansas, of 150° oil in barrels, from 8 to 18; in Tennessee, the same oil, from 8 to 16; in Mississippi, the same, from 11 to 17. In the eighties, prime white oil sold in barrels, wholesale, in Arkansas, all the way from 8 to 14 cents; in Illinois, from 7-1/2 to 10; in Mississippi, from 7-1/4 to 13-1/2; in Nebraska, 7-1/2 to 18; in South Carolina, 8 to 12-1/2; and in Utah, 13 to 23. Freight and handling might, of course, account for one to two cents of the difference, but not more.

A table of the wide variation in the price of oil, compiled in 1892, showed the range of price of prime white oil in the United States to be as follows:

The same wide range was found in water-white oil:

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