PETROLEUM INDUSTRY

Crude oil seeps from the earth's crevices and fissures, and accumulates in pools on surface rocks; it has been used as a fuel source since approximately 3500 B.C.. In the early nineteenth century, crude oil was collected from rock pools and primitively refined for commercial use. Dr. Abraham Gesner of Pittsburgh, inventor of kerosene lamp oil, formed the Pennsylvania Rock Oil Company in 1854. In 1859 Edwin Drake and W.A. Smith drilled the first U.S. well, specifically to find petroleum, in Titusville, (Oil Creek) Pennsylvania. Because crude oil was unsuitable for direct use, it had to be refined and converted into such products as kerosene, gasoline, and motor oil. In 1860 D.S. Stombs and Julius Brace of Virginia introduced and patented a semi-continuous refining system. In 1861 the first full-fledged petroleum refinery in the United States opened; it churned out mostly kerosene.

The legendary oil tycoon, John D. Rockefeller (1839–1937), began oil operations in 1863. Based in Cleveland, Ohio, Rockefeller founded the Standard Oil Company on June 10, 1870. Skillfully using the laws of incorporation and assembling trusts, Rockefeller eventually acquired competing companies across the country and established a very effective monopoly. By 1879 the 30 companies that belonged to the Standard Oil trust controlled 80 percent of the refineries and 90 percent of the pipelines in the U.S. petroleum industry. This giant trust leveraged its clout with the railroads to negotiate favorable freight rates.

Rockefeller was the biggest, but not the only, oil entrepreneur. In 1897 Joseph S. Cullinan organized the first pipeline and refinery in Corsicana in Texas. Cullinan also successfully pioneered the use of petroleum as a diesel fuel for locomotives and as a dust settler for streets.

The main reason for increased public demand for petroleum was the proliferation of the gasoline-powered automobile, various renditions of which sprang up in the late nineteenth century. Machinist and inventor Henry Ford employed assembly line techniques to lower the cost of each unit of production, making automobiles available to more consumers, and thus increasing the demand for gasoline.

Advancements in technology during World War I (1914–1918) escalated demand for petroleum. Farmers were able to increase productivity with gas powered tractors; new asphalt highways carried diesel-powered trucks delivering goods across the nation. New products derived from refined petroleum included plastics, synthetic fiber and rubber. Increasing demand for new products promoted a steadily increasing supply of new crude oil.

By 1992 the Chevron Oil Company was the largest petroleum refiner in the United States and was a huge producer of oil in terms of profits and sales. Chevron began in 1882 as Standard Oil of California, and quickly developed internationally. The second largest capacity refiner in the United States was Exxon Corporatoin. Exxon came about through the 1934 merger of Standard Oil Company of New Jersey and the Anglo American Oil Company Ltd. Exxon grew remarkably throughout the twentieth century. By 1993 it was the industry leader with profits totaling $5.28 billion. Profits of the Mobile Corporation ranked second at $2.08 billion from sales of $56.6 billion. Other industry leaders included Texaco Inc., Shell Oil Co., Chevron Corp., Atlantic Richfield Co., Conoco Inc., Amoco Corp., and BP America Inc.

Since the early 1950s natural gas was the refineries' largest end-product. Residential and commercial users consumed the largest proportion of natural gas. Industry consumed the next largest amount with power generation a distant third in natural gas consumption. (Food, paper, chemical, and petroleum refining industries all consume vast amounts of natural gas.)

In 1997 U.S. refineries produced an average of 14.63 million barrels of refined petroleum products each day. The United States supplied over one-fifth of the world's refined petroleum—roughly equal to the production of all the European countries combined. The U.S. refineries employed approximately 93,000 people in 1998.

During the first four decades of the twentieth century, the heyday of internal combustion in the United States, U.S. oil reserves were gradually depleted. Accordingly the oil industry became among the first to undergo "globalization." The Standard Oil Company anticipated this development back in 1888 when it established its first foreign affiliate, the Anglo American Oil Company Limited, headquartered in London. Although U.S. and European companies continued to reap most of the profits of petroleum production, by the mid-1950s much of the world's petroleum was being pumped in a small group of oil-producing countries, most of them in the Persian Gulf. In an effort to gain control of its petroleum reserves, these countries founded the Organization of Petroleum Exporting Countries (OPEC) in 1960. OPEC set a standard cost for producing a barrel of oil in all member countries. The minimum price per barrel was based on the tax-paid cost per barrel plus a profit margin. New petroleum companies could not undermine OPEC's dominant market by offering lower prices. In OPEC's early years, other petroleum producing countries used the organization more as a defensive instrument to stabilize the market. But plagued with oil shortages and political disruptions in the Middle East during the 1970s, non-OPEC refineries and suppliers began to rely more heavily on their own private inventories.

Beginning in the 1970s, many developments led to a sharp decline in world demand for OPEC oil. Several major factors, including environmental concerns, brought about changes; most changes were not in OPEC's favor. Revolutionary innovations in the oil industry drastically reduced the risk and expense of finding and developing oil and expanded output among non-OPEC producers. For example major U.S. oil companies owned and operated exploration and drilling sites around the world. Exploration, production, and transportation of petroleum in the United States was handled by private companies under the regulation of federal, state, and local commissions. Strategies such as this helped to boost the world's oil supplies at the expense of OPEC's market share. By the 1980s OPEC was a shadow of its former self.

Refining and production of oil and gas has become an exacting engineering science. The United States was a pioneer in petroleum refining, exploration, and perfected most techniques and procedures before other nations. U.S. petroleum refiners have been regarded as the world leaders. However, it remains to be seen as to whether shifting political boundaries will allow U.S. refiners to compete directly with foreign companies for a larger market share.

PETROLEUM INDUSTRY

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