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76th Congressl SENATE COMMITTEE PRINT
3d Session J
INVESTIGATION OF CONCENTRATION
OF ECONOMIC POWER
TEMPORARY NATIONAL ECONOMIC
COMMITTEE
A STUDY MADE FOR THE TEMPORARY NATIONAL
ECONOMIC COMMITTEE, SEVENTY-SIXTH CONGRESS,
THIRD SESSION, PURSUANT TO PUBLIC RESOLUTION
No. 113 (SEVENTY-FIFTH CONGRESS), AUTHORIZING
AND DIRECTING A SELECT COMMITTEE TO MAKE A
FULL AND COMPLETE STUDY AND INVESTIGATION
WITH RESPECT TO THE CONCENTRATION OF ECONOMIC
POWER IN, AND FINANCIAL CONTROL OVER,
PRODUCTION AND DISTRIBUTION
OF GOODS AND SERVICES
MONOGRAPH No. 39
CONTROL OF THE PETROLEUM INDUSTRY
BY MAJOR OIL COMPANIES
Printed for the use of the
Temporary National Economic Committee
UNITED STATES
GOVERNMENT PRINTING OFFICE
WASHINGTON : 1941
r:ORTHEASTERN UNIVERSITY SCHOOrof UAWDBRTOT
'k
TABLE OF CONTENTS
Page
Letter of transmittal -- ix
Preface - -- xi
CHAPTER I
Introduction ■ — 1
CHAPTER II
Basic factors 3
The extent of corporate coivtrol — 3
Ownership and control by branches of the industry 4
The competitive advantages of integration 5
The American Petroleum Institute 6
CHAPTER III
Production — 9
Oil di^scovery and production methods 9
Technical considerations in drilling __ 10
Control of crude oil reserves 10
Leasing activities of major oil companies 11
Form 88 lease and its abuse 12
Independent's problem of getting driUing permits . 12
Conservation and stabilization 13
Economic consequences of proration 14
Apparent motives underlying proration 14
Early etlorts at controlled production 15
Controls during the National Recovery Administration 16
The Connally Act ItJ
Market control through forecasts and stock reports 16
Progressive increases in proven crude oil reserves 17
Summary and conclusions 17
CHAPTER IV
Crude oil transportation ^ 19
The competitive advantages of pipe lines 19
The major oil companies' control of cryde oil pipe lines 20
The effect of pipe line profits on competition 21
Non-common carrier status of pipe lines 23
Noncompetitive restrictions on independent shippers 24
The pipe line companies' control over crude oil purchasing 24
Dividends paid to the major oil companies by pipe line affiliates 25
Jointly owned crude oil pipe lines 26
The coritrol of oil tankers by major oil companies 26
The oil tanker pool 26
Sunmiary an'! nclusions 27
CHAPTER V
Refining- 29
The function of relining . 29
The location and concentration of petroleum refining. 30
The ownership of refineries and cracking plants by major oil com-
panies 31
The consequences of oil cracking patent monopolies 31
The refinery "price squeeze" 32
Mortality of East Texas independent refiners 33
V
VI TABLE OF CONTENTS
Refining — Continued. '^'age
Ratio of capacity operated — independents contrasted with majors 33
Gasoline buying pools — purpose and effect 34
The Pa'clfic coast cartel 34
The Mid-Continent buying program 35
Lessening of competition through exchanging of gasoline 35
Summary and conclusion 36
CHAPTER VI
Gasoline transportation 37
The purpose and growth of gasoline pipe lines 37
' The ownership of gasoline pipe lines by major oil companies 37
Control of other transporting facilities 37
Mileage jointly owned by majors 38
Restrictions and noncompetitive specifications for shippers 39
Rebates 39
CHAPTER VII
Marketing 41
Geographical distri bution 41
Ownership of marketing facilities by the majors .. 41
Control over jobbers 42
(1) Elimination of independent jobbers 42
(2) Narrowing margins to jobbers 42
(3) Elimination of bulk plants through oil tank trucks 43
The use of basing point systems 43
(1) Group 3 or "Tulsa plus" basis 43
(2) Gulf coast bulk market 44
Ethyl Gasoline Corporation agreement ' 44
Price leadership and division of territory for posted prices 45
Control over service station operators •_ 46
(1) The use of pilot stations 46
(2) Noncompetitive supplies required to be handled 47
Uniform sales contracts to jobbers 47
Exclusive contracts and price differentials : 48
Elimination of trackside stations 49
The effect of Nation-wide credit cards 49
Summary and conclusions 50
Summary and conclusions 51
Bibliography 53
Appendix 57
Index • 97
SCHEDULE OF TABLES AND CHARTS
TABLES
Pago
1. Percentage distribution of employment .' d invested capital by di-
visions of the petroleum industry in 193 / 1
2. Total assets, date, and state of incorporation of the major oil com-
panies 3
3. Percentage of ownership or coi>ivol of brancliftg of the American
petroleum industry by major oil companies 5
4. Comparison of crude oil production since 1859 with cumulated", dis-
coveries of crude oil, indicating proven crude oil reserves United
States, 1900-38 17
5. Dead-weight tonnage of oil tankers under American registiry owned
by major oil companies 27
6. Percentage distribution of the recovery of refined products from crude
oil in 1938 29
7. Frequency distribution of the size of petroleum refineries 30
8. Affiliation of major oil companies with oil patent companies 32
9. Ratio of crude oil and gasoline prices in East Texas — 1933-37 32
10. Contrast of refining and cracking capacitj' of the major and inde-
pendent groups 33
11. Refinerv operations of the major oil companies and independents, 1926
and 1937 : . 34
12. Distribution of stock ownership of Great Lakes Pipe Line Co. on De-
cember 31, 1938 38
13. Price structure of regular grade gasoline at Des Moines, Iowa, as
posted by Standard Oil Co. (Indiana) 43
14. Tetraethyl lead content of regular and premium grades of gasoline
sold t)y major oil companies 45
15. Price leaders of petroleum products and the States in which they post
prices -■ 46
APPENDIX
TABLES
1. Comparison of gasoline consumption, domestic crude oil production,
and motor vehicle registrations, by years, 1900-1938 57
2. Trend of gross investment in properties, plant, and equipment of the
American petroleum industry, by years, 1921-38 57
3. Total assets of 20 major oil companies,. 1924-38 60
4. Composite analysis of earnhigs, dividends, and changes in surplus of
20 major oil companies 61
5. Shares of common stock held \.y the 100 largest stockholders of the
major oil companies, December 31, 1938 - 62
6. Total acreage of oil lands held in the United States by major oil com-
])anies, by years, 1929-38 64-65
7. Domestic production of crude petroleum and producing oil wells, 20
major oil companies and all companies 67
8. X umber of domestic producing oil wells owned or operated by major
oil companies, by years, 1929-38 68
9. (Iross production of crude oil by major oil companies, by years,
1929-38 - -• ■ 69
10. Purchases of crude oil by major oil corif anies (excluding imports) by
years, 1929-38 --- 70
11. Crude oil runs to stills in domestic relreries 1 . major oil companies,
by years, 1929-38 - '...r 74
12. Gasoline manufactured by major o,i companies (including natural
gasoline used in blending) by yearr., 929-38 --- 75
13. Refinerv operations of 20 major oil ci nr. janies and all other companies,
by years, 1926, 1931, 1935-37... .. 1 . 76
VII
VIII SCHEDULE OF TABLES AND CHARTS
Page
14. Seasonal trends of selected phases of the petroleum industry, based on
the 10-year average of monthly indexes from 1929 to 1938, United
States 77
15. Purchases of gasoline by major oil companies, by years, 1929-38 78
16. Total crude oil pipe line mileage of major oil comi, .nies in the United
States, December 31, of the years, 1928-38 81-82
17. Gasoline pipe line mileage owned and operated by major oil com-
panies, December 31, of years 1928-38 ■ 85
18. Rate of return on pipe line investment for oil companies reporting to
* the Interstate Commerce Commission, 1938 87
19. Domestic marketing territory of 20 major oil companies, by States,
May 1939 88-89
20. Number of domestic h\ Ik plants, by raajoV oil companies, by years,
1929-38- 90
21. Number of domestic service stations, by maior oil companies, by years,
1929-38 -' 90
22. Total domestic sales- of gasoline bv major oil companies, by States,
1938 -- 91-93
23. Total gasoline consumption and domestic sales of gasoline by major oil
companies, by States, 1938 . 94
24. Quantitites of gasoline sold in the United States by major oil companies
to which tetraethyl lead, purchased from the Ethyl Gasoline Cor-
poration, was added in anv quantitv for use in blending, bv years,
1929-38 1 95
CHARTS
I. Com]-)arison of gasoline consumption, domestic crude oil produc-
tion,'and automobile registrations, 1900-1938, inclusive 58
II, Comparison of the total assets of 20 major oil companies for the
years 1924 and 1938 : 59
III. Common stock held by the 100 largest stockholders of the major
oil compauies, December 31, 1938 Facing 60
IV. Comparison of crude oil production since .1859 with cumulated
discoveries of crudie oil, indicating proven crude oil reserves 63
V. Number of oil wells and crude oil production for the United States,
by years, 1926, 1931, 1935 37 66
YI. Posted prices of crude oil from 1919, price of average gravity of
crude in districts, Humble Oil & Refining Co. postings Facing 71
VII. Daily crude oil refining capacity, 20 major companies and "all
other" companies as of January 1, 1938 71
VIII. Daily capacity of cracking plants, 20 major companies and "all
other" companies as of January 1, 1938 72
IX. Annual crude oil runs to stills and production of gasoline for
United States, 20 major companies, and "all other" companies,
1926, 1931, 1935-37 73
X. Refinery activitv, 20 major oil companies and all other companies
by years, 1926, 1931, 1935-37 76
XI. Seasonal trends of selected phases of the petroleum industry,
United States, based on the 10-year average of monthly indexes
from 1929 to 1938 77
XII. Year-ejnd stocks of crude oil and principal products in the United
States, 20 major companies aTnd "all other" companies, 1926,
1931, 1935-37 79
XIII. Crude oil pipe line mileage in United States, 20 major companies,
and "all other" companies, June 30, 1936 80
XIV. Crude oil trunk pipe lines in the United States, May 1939 Facing 80
XV. Trunk crude oil pipe-line mileage in the United States, as reported
to the Interstate Commerce Commission, 14 major oil com-
panies and "all other" companies as of January 1, 1938 83
XVI. Gasoline pipe lines of the United States, May 1939 Facing 83
XVII. Investment and income of pipe line companies, 15 principal com-
panies, dnd other companies as reported to Interstate Commerce
Commission, 1938 84
VIII. Number of oil tankers and deadweight tonnage owned by American
companies under American registry, September 30, 1938 86
XIX. Percentage ownership or control by major oil companies in various
branches of the petrolciuTi industry Facinii '.'"
LETTER OF TRANSMITTAL
Department of Justice,
Washington, January 15, 1941.
Hon. Joseph C. O'Mahoney,
Chairman, Temporary National Economic Committee,
Washington, D. C.
My Dear Senator: I have the honor to transmit herewith a study
entitled "Control of the Petroleum Industry by Major Oil Com-
panies" by Mr. Roy C. Cook, a member of my staff. This report
originated and was completed by Mr. Cook as a private research
project in the Department of Economics of The George Washington
University. It is worthy of submission to the committee as a definite
contribution to the hearings and literature on The petroleum industry.
The author's background and research experience, especially in con-
nection with the work of this committee, has fitted him to prepare this
short but informative report on an industry so important to our
national economy.
Mr. Cook has prepared this report, based upon public and privately
published sources, independently of his official duties as a member of
the economic staff of the Department of Justice. The facts, opinions,
and conclusions are solely those of the author and are not to be con-
sidered as the opinions or policies of the Department of Justice.
Resf)ectfully submitted..
Thurman Arnold,
Assistant Attorney General.
IX
PREFACE
The object of tliis study is to examine the more important monopo-
Ustic conditions wliicli prevail in. the petroleum industry. The
analysis will be devoted primarily to the controls and economic power
which the major oil companies exert over independent, nonintegrated
oil comi)anies. Most of us are fairly familiar with the story of the
Standard Oil Trust wliich was dissolved by the Supreme Court in
1911, so that little attention will be given to this, except in the way
of a few comparisons. The control of the industry by the major oil
companies appears to be just as complete today as was the case of
the Standard Oil Trust under Rockefelljer. However, the methods of
control are somewhat different today.
Even though the 20 major oil companies are separate corporate
entities, there is definite evidence of cooperation among them and
uniform concerted action by the adoption of identical business poli-
cies which has the effect of group monopoly. The American Petro-
leum Institute through its various committees makes their policy
toward group monopoly more effective. The position of the inde-
pendent oil companies has been gradually becoming weaker during
the past 10 or 15 years, so that the opportunity for independent capital
today is not at all promising, despite the continued and progressive
growth of the petroleum industry. The advantages of full integra-
tion which the majors enjoy and their virtual control over transporta-
tion facilities give them distinct competitive advantages.
Altliough State and Federal programs have been adopted to pro-
rate and regidate crude oil production in the name of conservation,
the price considerations used in proration have usually favored the
majors rather than the independents.
It is hoped that tliis study Nvdll present the problems that face the
independent today and what considerations a new investor should
bear in mind before going into the industry. The consumer aspect
of the problem of the major's control of the industry is not developed
io-.this survey. Instead, it will be developed from the point of view
of the independent oil man. Since the majors are fully integrated
and engage in all activities from the wells to the consumer, the
analysis of tlu? controls wiH be made for each of the four divisions of
the industry insofar as this is practicable.
The tables and charts contained in the appendix have been repro-
duced, without change by the author, from the record of the Hearings
before the Temporary National Economic Committee on the Petro-
leum Industry, September 25 to October 25, 1939.' It is believed
that the material in this appendix has a definite bearing on the prob-
lems in the petroleum industry and supplements the tables appearhig
in the text.
This study originated and was completed as a research project in
the Department of Economics of The George Washington University
in 1940. In this connection the author wishes to express his appre-
ciation to Dr. Donald S. Watson for his helpful suggestions and
constructive criticism of the text.
1 Hearings, Parts 14, 14-A, 15, 15- .\, 16, »7, and 17-A.
CHAPTER I
INTRODUCTION
The American petroleum industry is composed of 4 divisions —
namely, production, transportation, refining, aiid marketing. The
petroleum industry is the largest in the industrial group as measured
by hivestcd capital and ranks next below each of the broad classifi-
cations of agriculture, railroads, and public utilities. The 17 largest
industrial corporations in terms of their total assets on December 31,
1939, included 9 oil corporations.^ One of the mam characteristics
of the industr}^ is that of full integration, and there is no relatively
large company today which is not fully integrated, although a bal-
ance of the 4 divisions does not -always exist. The economic
structure of the industry has been dominated by the fact of mass
producion in refining. Vast networks of crude-oil and gasoline pipe
lines and large ocean-going tankers, controlled jointly and individu-
ally bj^ major oil companies, have been a vital factor in developing,
the Large oil enterprises.
The total amount of capital invested in the industry at the end
of 1939 was estimated to be about 15 billions of dollars, compared
with 6)2 billions invested in 1921, indicating the very rapid expansion
of the in.dustry.- For 1938 the estimated total retail value of gaso-
line was 2% billions of dollars, while the total sales of all petroleum
products was about 5 billions. The number of workers in 1939 was
about 800,000. In addition there were an estimated 182,000 engaged
in indirect retail outlets for petroleum products, such as garages,
parking lots, and country stores.^
Some idea of the distribution of labor and capital may be seen
from table 1. It is to be noted that the production division had 43
percent of the capital invested in the industr}^ as compared with only
13 percent for the marketing division, which, however, accounts for
64 percent of the total employment in the industry.
Table 1. — Percentage distribution of employment and invested capital by divisions
of the petroleum industry in 1937
Division
Employ-
ment '
Invested
capital '
Production . . . . ... . ..
18
6
13
64
43
Transportation
17
Refining
^
Marketing.
13
Total
100
100
^
1 American Petroleum Institute, Petroleum Facts and Figures, New York, 1939, p. 146.
' American Petroleum Industries Committee Taxation Bulletin, vol. HI, No. 8, Nov. 28, 1938, pp. 2706-
2774.
1 Moody's, Manual of Industrial Investments. New York, 1940.
' Standard Statistics. Inc., The Petroleum Industry, New York, February 1940: see appendix, tablo 2
p. 57.
• American Petroleum Institute, Petroleum Facts and Figures, New York, 1939, p. 146.
1
2 CONCENTRATION OF ECONOMIC POWER
The petroleum industr}^ dates from 1859 with the discovery of the
Drake well in Pennsylvania. However, the intensive growth of the
petroleum industry has taken place since the early twenties, being
closely coordinated with the accompanying growth of the automobile
industry.^ Gasoline became the most important product of petro-
leum, whereas in the days of the Standard Oil Trust kerosene was
the principal product. Improvements in refinery processes have made
it possible to recover approximately twice as much gasohne from crude
oil as was the case in 1920. The consumption of gasoline has more
than.doiibled since 1925.^ In 1911 crude oil production was 220,000,-
000 barrels as compared with 1,214,000,000 barrels in 1938, which
indicates the size of the industry at the time of the dissolution decree
and today.®
The so-called Standard Oil trust controlled the industry through
the monopolization of the refining and transportation branches, thus
acquiring its independent competitors. The Supreme Court of the
United States in 1911 disiiitegrated the trust into 33 companies.
From these and other large financial interests, including those con-
trolled by the Mellons and the House of Morgan, developed 20 major
oil companies whose large aggregation of capital and identical policies
make it easier for them to control the industry so that there is little
opportunity for the small nonintegrated company to survive.
* Appendix, chart I and table 1, pp. 57-58.
» Idem.
« Idem.
CHAPTER II
BASIC FACTORS
THE EXTENT OF CORPORATE CONTROL
The 20 major oil companies considered in this analysis had at the
end of 1939 combined total assets of about 9 billion dollars, ranging in
size from 62 to 2,035 million dollars, which is by far the largest of
any group of corporations classified on an industry basis. Table 2,
below, gives the correct corporate name of the 20 major oil com-
panies and their total assets at the end of 1939. This group repre-
sents about 60 percent of the investment in the industry, but their
degree of control of the industry is very much higher than this percent-
age indicates. Collectively, these corporations own or control through
stock ownership 405 subsidiary companies operating in the United
States; by far the greatest number belong to Standard Oil Co. (New
Jersey). In addition, there are 35 companies which are jointly owned
by the majors. In fact, all majors arejoint owners in some of these
companies, and as many as 12 of the majors are affiliated with a single
company.^ The names of the subsidiaries do not usually indicate that
they are owned by the majors. This is confusing to most people, and
it is not uncommon for authors and oil men to refer, for example, to
Standard Oil Co. (New Jersey) as Standard Oil Co. of New Jersey,
when, in fact, they are different companies. There are at least a dozen
companies with the name Standard Oil Co. with the State of incorpo-
ration used to differentiate them in common usage.
Table 2. — Total assets, date, and State of incorporation of the major oil companies '
Name of company '
Total assets,
Dec. 31. 1939
(thousands)
State of incorporation
Date of in-
corporation 3
Stanaar'i Oil Co.<
$2, 034, 989
1,068,578
929, 066
723, 079
661,067
628, 618
523, 292
401, 048
357, 848
223, 280
204, 467
203, 400
187,066
178, .567
146, 43i
133, 748
127, 661
76. 072
65, 103
62,048
New Jersey
Delaware
New Yr.rk
Auff. 5, 1882
Cities Service Co
Sept. 2, 1910
Socony-Vacuum Oil Co., Inc.*
Aug. 10, 1882
Stardard Oil Co.*
June 18, 1889
The Texas Corporation
Delaware
. .do
Pennsylvania
.\ug. 26. 1926
Standard Oil Co. of California * 1
Jan. 27, 1926
Oull Oil Corporation
Auj. P. 1922
Shell Union Oil Corporation
Delaware . ...
Feb.' 8. 1922
Consolidated Oil Cfirporation.- .--
New York...
Delaware.
. ..do
Pennsylvania
California
Sept. 23, 1919
Phillips Petroleum Co
June -13, 1917
Tide Water A.ssociated Oil Co.* ...
Mar. 5. 1926
The Atlantic Refining Co.*
-A.pr. 29, 1870
Union Oil Co. of Calilcrnia
Oct. 17, 1890
The Pure Oil Co
Ohio...
New Jersey
Apr. 9, 1914
Sun Oil Co
Afav 2, 1901
The Ohio Oil Co.*
Continental Oil Co.*
Ohio
Delaware
Ohio...;
Delaware
July 30,1887
Oct. 8. 1920
The Standard Oil Co.*
Jan. 10, 1870
Mid-Continent Petroleum Corporation
July 9, 1917
Skelly on Co
-_._.. do
Aug. "20, 1919
Total
8,935,428
' Total assets are taken from the annual reports to stockholders for the year ended Dec. 31, 1939; the name
of the company. State, and date of incorporation are as reported to the Temporary National Economic
Committee in response to question 1 of the questionnaire for oil companies, 1939.
' Frequently the State of incorporation is added to the name of some companies to readily differentiate
them.
' The date of incorporation is the latest one and does not necessarily indicate the origin of the company,
since some companies were reoreanizcd and reincorporated.
' Companies which were a part r.t the Standard Oil Trust. Some companies were reorganized and reincor-
porated after the 1911 dissolution.
' United States v. American Petroleum /netittUe et nl., Complaint, No. 8524, filed in the District Court for
the District of Columbia, September 30, 1940, p. 12.
3
4 CONCENTRATION OF ECONOMIC POWER
Only a small portion, less than 6 percent, of the subsidiary com-
panies mentioned above are fully integrated. For the most part they
are engaged in one or two divisions of the industry, but the operations
are complementary to the other subsidiaries and the results are the
same as if they were divisions or branches of large companies.
Four of the largest major oil companies are holding companies; the
other 16 are both holding and operating. Nine of the 20 majors are
incorporated under the laws of Delaware. As is the case of most
large corporations, the officers control the voting stock so completely
that they need not consider stockholder approval of their decisions
and policies. In the meetings held by 17 of the major oil companies
in 1938, the officers voted an average of 99.3 percent of the common
stocks voted.-
The stock of several majors is closely held.^ For example, the 100
largest stockholders of Shell Union Oil Corporation and Sun Oil Co.
held 88.9 and 84.9 percent, respectively, of the common stock at the
end of 1938."* Certain influential stockholders have interests in many
companies. The Harkness and Flagler group, original partners of
Kockefeller, and the Rockefeller group have substantial interests in
the 6 majors of the Standard group. This interlockmg of dominant
stockholders makes it easier to pursue concerted action against inde-
pendent competitors ajqid tends to establish a strong possibility of
cooperation. This is especially true of the majors that were a part of
the Standard Oil Trust.
OWNERSHIP AND CONTROL BY BRANCHES OF THE INDUSTRY
The importance of the 20 major companies has grown appreciably
in the past 15 or 20 years. From 1926 to 1937 their share of total
crude oil production rose from 46.3 to 52.5 percent: of crude oil stocks,
from 76.6 to 94.2 percent; of refining capacity, from 65.5 to 75.6
percent; and of gasoline production, from 71.3 to 83.8 percent.^
Table 3 shows their percentage of control by the various branches or
activities of the industry for the most recent year.
In 1937 the major companies owned 23.7 percent of the producing
oil wells. However, their share of the flowing wells is much greater,
as indicated by the fact that they produced 52.5 percent of the crude
oil of the United States from these wells. ^ This, apparent deficiency
in crude oil production is compensated by their being able to purchase
crude oil in a market controlled by them through pipe lines. This will
be developed under the subject of pipe line control. In 1937 the con-
sumption of crude oil or runs to stills by the 20 majors was 997,016,000
barrels. Their production of crude oil was 671,992,000 barrels, which
means that the deficiency of 325,024,000 was obtained from the inde-
pendents. Further analysis of the concentrated control and ownership
will be developed in treatment of the different divisions of the industry.
» Hearings before the Temporary National Economic Committee, 76th Cong., 2d sess.. Part 14, Petroleum
Industry, p. 7105.
3 Hearings before the Temporary National Economic Committee, Part 14-A, pp. 7776-7778; see also
appendix, table 5, p. 62.
< Appendix, chart HI, facing p. 60, and table 5, p. 62.
» Based on a special tabulation by U. S. Bureau of Mines in 1938 for the Temporary National Economic
Committee, Hearings, Part 14, p. 7105.
• Appendix, table 7 and chart V. pp. 66-67.
CONCENTRATION OF ECONOMIC POWER
Table 3. — Percentage of ownership or control of branches of the American petroleum
industry by major oil companies '
Branch
Total investment '
Producing oil well? ' _
Crude oil produotion '
Crude oil gathering pipe line mileage '
Crude oil trunk piix- Ime mileage *
Investment in pipe lines '
Pipe line opfratiug income *
Deadweight tonnage of tankers '
Stocks of refinable crude oil '
Daily crudo-oil capacity '
Daily erarking capacity •
Crude oil runs to stills '
Production of gasoline ' , ■.
Storks of finished gasoline '
Gasoline pipe line mileage
Domestic sales of gasoline
Number of
companies
Percentage
20
60.0
20
23.7
20
52.5
20
57.4
14
89.0
15
77.4
15
86.4
15
87.2
20
96.5
20
75.6
20
S.! 2
20
82.6
20
^83.8
20
90.0
16
96.1
IS
80.0
. Year
1939
1937
1937
1936
1938
1938
1938
1938
1937
1938
1938
1937
1937
1937
1939
1938
' See Complaint No. S524, United States v. American Petroleum InHitute el aZ., filed in the District Court
for trie District of Columbia, Sept. 30, 1940, p. 31; aypendi.x, chart XIX, facing p. 95.
• Standard Statisti&s, Inc., the Petroleum Industry, New York, February 1940 and annual reports to
stock hoi der."! for the year ended Dec. 31, 1939.
' Special tabulation of the U. S. Bureau of Mines in 1038 for the Temporary National Economic Com-
mittee, Hearings, Part 14-A, pp. 7714, 7716-7718, 7720, and 7735.
• Interstate Commerce Commis.sion, Statistics of Oil Pipe Line Companies. 1938.
» XJ. S. Maritime Commission, Division of Research, Special Report 2838, October 1938.
« U. S. Bureau of Mines, Petroleum Refineries, Including Cracking Plants, Jan. 1, 1938.
THE COMPETITIVE ADVANTAGES OF INTEGRATION
The Standard Oil Trust was not integrated in a way comparable
with the majors today. Its main control was in refining and trans-
portation. Smce that time, however, the tendency has been for all
companies to become fully integrated so as to control oil from the
wells to the consumer and to protect their large amount of capital.
About 20 years ago the production end of the oil business, was much
more risky, and the majors preferred to buy more oil, but now with
the accumulation of underground reserves it is quite advantageous.
Likewise, with the growth of automotive transportation filling sta-
tions were built, and to insure adequate outlets the majors built their
own stations which they continue to control. This makes it possible
to.- advertise successfully on a national scale. Independents selling
in a very limited area cannot achieve these results.
When the Standard Oil Trust was dissolved in 1911 there were
other companies which were fairly well integrated as a partial defense
against its control. These companies were Texas, Gulf, Pure, and
Union, ^ which are prominent majors today. Since the Standard Oil
units were engaged for the most part in only one division, steps were
taken to acquire or merge with other companies so as to obtain the
advantages of integration. Thus. Standard Oil Co. of New York
took over Magnolia Petroleum Co. in 1918; Standard Oil Co. (Indiana)
had its charter amended in 1917 to permit it to engage in producing
and transporting crude oil and soon purchased some producing and
refining companies, including the Midwest Refining Co. in 1921;
Continental Oil Co. merged in 1924 with Mutual Oil Co., an integrated
company; Standard Oil Co. of California merged in 1926 with Pacific
Oil Co., the largest crude oil producer in the United States at that
time; Standard Oil Co. (New Jersey) got control of Humble Oil &.
Refining Co. in 19.17, a fully integrated company and a valuable
• Poor's Manual of Industrials, 1914. Fifth Annual Number, New York, pp. 1532, 1908, 1950, 2i88. and 230S.
278523— 41— No 39 2
g CONCENTRATION OF ECONOMIC POWER
source of crude oil and refined petroleum products for its eastern
territory.^
The earnings of the majors for the years 1924 to 1938 averaged
8.9 percent on the par or stated value of the common stock, or 5.G
percent on the book value of the common stock .^ This alone does
not suggest strong monopoly control, but it is significant that these
companies earned their profits largely in the divisions in which the
monopoly position is most clearly indicated. As a result of integra-
tion it is possible to lose money in one division and show a profit at
the end of the year on the entire activities. Mr. Dorsey Hager com-
mented on the advantages of integration as follows: '°
Integration is of great advantage to a concern in that profits from one branch
may be used to offset losses in another. Oil may be produced at a loss, but the
refinery may make money; or the marketing branch ma.y suffer losses which are
offset by the producing, the refining, or the pipe-line branches. In times of
severe depression a large oil concern may earn a profit due to its integration.
The marketir.g division is usually operated at a loss, but it does make
a dependable outlet and. extension of other 'divisions possible. Like-
wise, a rigid price structure can be maintained. The earnings by
divisions of the industry as reported by the. majors to the Temporary
National Economic Committee certainly support this view. Out of
the eight companies answering this inquiry six had an average loss
in marketing in 1938 of 6.7 percent and two reported profits of 5
and 4.5 percent each.'^ During the same year the average rate of
return for pipe lin.e companies of the majors was 26.5 percent. ^^
THE AMERICAN PETROLEUM INSTITUTE
The Institute with its main headquarters irt New York is the
primary trade association and is essentially engaged, m activities to
more effectively assist the major oil companies in controlling the
petroleum industry. Its membership is open to any individual in
the oil business, but for all practical purposes it is dominated by the
majors. The work of the Institute is largely accomplished through
industry committees which cover every branch or activity of the
I petroleum in.dustry and the membership of the committees indicates
very conclusively that the majors do predominate.^^ The Institute
is one of the strongest means that the majors have in. dominating the
in.dustry; the Darrow Board referred to it as operating "the switch-
board for the controlling companies." '^ Voluntary contributions to
the Institute in 1936 amounted to several hundred thousand dollars. ^^
The annual dues of $10 are relatively small, and they amount to only
a small percentage of the annual expenditures.'^
' Federal Trade Commission, Petroleum Industry, Prices, Profits and Competition, Washington, 1928,-
pp. 84-98, for an analysis of acquisitions and mergers of oil companies since 1911. The report states: "Stand-
ard units have made acquisitions for the purpose of greater integration of the particular units involved"
(p. 98). In reference to acquisitions of Standard Oil Co. of New York, it says: "These acquisitions greatly
strengthened the Standard of New York as an individual unit in the industry and changed it from practically
dbly a marketing company to a completely integrated organization" (p. 93). Seealso testimony of J. Howard
Pew, president of Sun Oil Co., hearings before the Temporary National Economic Committee, Part 14,
p. 7168.
. • Appendix, table 4, p. 61.
i" Dorsey Hager, Fundamentals of the Petroleum Industry, McGraw-Hill Book Co., New York, 1939,
p. 389.
" Ilearm^s before the Temporary National Economic Committee, Part 17-A, pp. 10040-10042.
" Interstate Commerce Commission, Statistics of Oil Pipe Line Companies, Washington, 1938.
>5 See American Petroleum Institute, Petroleum Facts and Figures, 1939, for the list of members serving
on the various committees.
1* National Recovery Review Board, Second Report to the President, Ward & Paul, Washington, 1934,
p. 51.
" State.of New York, Legislative Document No. 93, 1939, p. 70.
i« William J. Kemnitzer, Rebirth of Monopoly, Harper & Bro., New York, 1938, p. 28.
CONCENTRATION OF ECONOMIC POWER 7
The Institute publishes and sends to its members a weekly statistical
bulletin, wliich covers crude oil production, runs to stills, stocks of
crude oil, an.d refined petroleum products, imports, and exports. In
addition to this weekly bullet hi an ann.ual digest is made.'^ Thes<i
statistics are reported voluntarily to the In.stitute each -week by the
members wliich scarves the purpose ol lessening competition and
making integration more effective and profitable. The following news
stoiy shows how the In.stitute operates to assist the majors in con-
trolling stocks: '*
With gasoline storage now heading for the 86,000,000 level by March 31, Mr.
Van Coven suggested that, in order to facilitate a reduction in gasoline stocks of
25,000,000 during the summer season, runs to stills should be restricted to a daily
average of 3,252,000 barrels during the second quarter and to 3,232,000 barrels
during the third quarter.
Mr. Van Coven, is director of tlie department of statistics of the
American. Petroleum Institute, and this obviously had an effect on
the price structure.
In December 1924 th.e public, relations committee was organized
and it was claimed by spokesmen for the independents' that its main
fun.ction was propagan.da.'^ It cooperated with trade journals, pre-
pared speeches, and gave out other information to obtain public good-
will. The Institute abolished this committee on May 31, 1940, for
fear of action for violation of the antitrust laws.^°
With this analysis of the basic factors in the majors' control and
special characteristics of the industry, more detailed treatment will be
given now for each of the four divisions, beginnin.g with production.
" W. R, Boyd, Jr., e.xecutive vice president. 'American Petroleum Institute, Institute's Various Activities
Render Valuable Service to Every Branch of the Petroleum Industry, Oil and Gas Journal, Tulsa, May
31. 1934.
IS New York Journal of Commerce, February 17, 1939. On this point see also the Institute's "Quarterly."
■» William J. Kemnitzer, op. cit., p. 26.
w Journal of Commerce and Commercial, May 31, 1940, p. 3.
CHAPTER III
PRODUCTION
OIL DISCOVERY AND PRODUCTION METHODS
The function of the producmg division of the petroleum industry-
includes the exploration for and recovery of crude oil. As previously
pointed out tliis division has by far the greatest amount of invested
capital. In the prospecting and exploration activities we find inde-
pendents taking a rather important part and are quite willing to gamble
on their skill. Exploration for crude oil is of 2 general types —
random and scientific — and both kinds are essential despite recent
technologic advances. It can be said that the majors use more scien-
tific technique and equipment, while the independent continues this
work with the minimum of equipment, but taken as a whole they do
rather welk This does not imply, however, that the}'- hold the eco-
nomic advantages which would appear to be the result of their successes.
These independent prospectors, known as "wildcatters," are willing
to take chances on a venture whose odds have been from 30 to 40
against striking oil.* On the other hand, under the best modern
methods used by majors in special areas, the odds are as low as 8 to 1.^
It is estimated that over half the oil has been discovered through
random and casual drilling.' Some of the best known fields have been
discovered by independents. In October 1930 Mr. Dad Joiner, an
independent prospector, discovered the East Texas field after the
majors had passed it up. This fiBld has by far the greatest reserve
ever discovered and is considered as having an ultimate recovery of
over 4,000,000,000 barrels. But, as will be developed more fully
later, the advantages of ^he large discoveries usually go to the majors.
The field is now controlled by the majors through leases ancj/^pe ]^nq
ownership and shipping restrictions. • ? «:;
Another example of independent discoveries is the Kettleman Hills
field in California. Milham Oil Co. discovered this important field
in 1930 after spending $500,000. But Standard Oil Co. of California
held half the acreage in this field in 1939 with a reserve of over a half
billion barrels on its own properties.^
The operations of the individual or small company differ from the
large companies. Prospecting is the venturesome, risky, and specula-
tive branch of the industry, always exciting and highly profitable
when successful. A survey of the discoveries of oil as reported in the
oil journals indicates that in units of pools the small companies and
individuals have made twice as many discoveries as the majors, yet
' Roarings before the Temporary ■vational Economic Committee, statement of E. DeOolyer, Part 14
p. 7664.
' Idem.
' Idem.
* Dfirscy nacer. Fundamentals of the Petroleum Industry, McO raw-Hill Book Co., New York. 193S p.v
373. He also refers to this case with this comment: "Althouph that concern did not discover the field, it has
benefited y the discovery, which will probably net the concern as much as the whole value of the company
before the Kettleman field was opened."
9
10 CO^X'ENTRATION OF ECONOMIC POWER
these same majors own or control about 70 percent of the proven crude
oil reserves.
TECHNICAL CONSIDERATIONS IN DRILLING
The petroleum industry gets its finished products from two raw
materials, commonly known as crude oil and gas. Essentially an oil
pool is an underground reservoir of oil. As soon as a hole is pierced by
drilling a well, the expansion of gas in solution, called gas pressure,
usually forces out the oil.^ As more and more crude oil and gas are
obtained from the well, the pressure becomes weaker and finally the
oil can be recovered only by artificial means.
When oil is discovered in a particular area by drilling, other land-
owners in the area must start drilling or their share of the oil will be
lost. Under the "rule of capture" the courts have held there is no
remedy for proportionate recovery of underground oil according to
land area. Since this is true and because oil will shift over a consider-
able area, efforts have been made to solve unnecessary competitive
drilling by drilling the area as a unit. In some cases this has caused
hardships when minority interests have not been able to recover their
share of oil as rapidly as their needs required. This is better under-
stood when one considers that the majors have control over the acreage
and reserves.
CONTROL OF CRUDE OIL RESERVES
The committee on petroleum reserves of the American Petroleum
Institute estimated the proven crude oil reserves of the United States
to be 17.3 billion barrels as of January 1, 1939. Sixteen major oil
companies reported 8.9 billion barrels of proven crude oil reserves,
or 51.4 percent of the total as of January 1, 1939. The other 6
companies have 20 percent of the acreage and if their crude oil reserves
were estimated by using the same ratio of acreage and reserves for the
other 16, majors, the total reserves of the major group would be at
least 70 percent of the total reserves. The most important companies
holding crude oil reserves are Standard Oil Co. (New Jersey), the
Texas Corporation, Gulf OiJ Corporation, and Socony-Vacuum Oil
Co., Inc , which together have about 32 percent of the total reserves.
Mr. E. DeGolyer in his testimony before the Temporary National
Economic Committee in the fall of 1939 stated:
Whether by force of circumstance or design, the big companies are able to
market their reserves less rapidly than are the small companies and individuals.^
He also shows that the 10 largest companies have approximately 50
percent of the crude oil reserves and gross production of only 36.8
percent, or a net of 31.5 percent of the total production.^ This is
made possible through their control of the crude oil market through
pipe lines.
The statistics on crude oil reserves by fields show that the percentage
of reserves held by individual majors is very high. In many cases it
» J. B. Umpleby, "Reservoir Energy," Transactions of A. I. M. M. E., Petroleum Development and
Technology, 1933, pp. 22-32.
« Hearing.s before the Temporary National Economic Committee, Part 14, p. 7393. The following
colIo<)uy is recorded at pag&7394:
"The Chairman. Well, do you mean that the big company, the major company, tends to develop and
transport and -^istribute the refined products more slowly than the independent?
"Mr. DE'JaL fjER. i don't know the extent to which that tendency may run through the other branches
of the industrV;.. out it is actually a fact that he gets to market with his reserves much more slowly than the
independent docs. When I say he gets to market, I am referring to the crude market now,"
' Tbid, p. 7393.
CONCENTRATION OF ECONOMIC POWER H
is 100 percent. A large number of the oil fields are developed and
owned jointly by major oil companies. A very good example of this
is the Kettleman North Dome Association in which eight majors have
a joint interest.
Practically all the acreage in proven areas has been leased, and most
of it is controlled by major oil companies. At the end of 1925 the
successor companies of the old Standard Oil Co. of New Jersey
controlled 47.4 percent of the proven acreage. Although all these
holdings were not in rich producing areas, consolidations since 1925
and the acquisition of further reserves by the jtnndard Oil groups
have substantially raised this percentage.*'
LEASING ACTIVITIES OF MAJOR OIL COMPANIES
It has already been established that the independent oil prospector
discovers about twice as much oil as the majors, but the majors have
approximately 70 percent of the proven crude oil reserves. This
favorable position of the majors in reference to reserves is largely
due to their leasing activities which tends to establish an important
control. The majors have been active in leasing prospective oil lands
after oil possibilities developed. Their policy is to lease this land and
then decline to drill until oil is discovered elsewhere. One object of
this is to limit production of independents.
^Ir. John E. Shatford, an independent oil man of El Dorado, Ark.,
advised the Temporary National Economic Committee on this
activity as follows: ®
At the present time the policy which is being followed by major companies
wherever circumstances permit is one which seeks to effect exclusive ownership
of newly discovered producing horizons. In the current search for new deposits,
particularly where deep horizons are being explored, such secrecy as may be
thrown about their operations is used to avoid outside participation in the leasing
of mineral rights in an area which any company or group of companies may have
found. It is not at all uncommon for leasing crews to be dispatched at daybreak
to cover an area within which the suspected structures may lie for the purpose of
procuring oil and gas leases. Contrary to former practice these companies do
not confine themselves to the purchase of leaseholds. They now purchase roj'alty
interests which give them a share of one-eighth of the oil^which customarily goes
to the owner of the land. Customarily they buy these royalty interests at or
near the nominal price which they pay for leases. When their leasing is complete
they review the situation and make an in>mediate effort to eliminate from the
so-called block any ownerships of oil and gas leases which may be held by others
than their own type of operator.
It usually works out this way: An individual owns a small lease which
shows on the major company's map as being in a probable productive
area. He will then be approached by a representative of the major
company who will probably offer a higher price than they have been
paying for leases before that time. If the independent owner will not
sell at these terms, an effort is made to trade him a certain number of
acres of royalty interest for his lease. If necessary, he will be offered
a royalty interest in a better position on the structure than his lease.
Until a few years ago when enforced unitization '° began to be used it
was customary for the majors to pay finallv whatever price the
! Federal Trade Comniission, Petroleum Industry: Prices, Profit , ind Competition, Washington,
Government Printing Office, 1928, p. 78.
« Hearinps before the Temporary National Economic Committee, F r 15, pp. 8532 and 8533.
" Stall' ropulfitions requiring different holdings in a field to be drill i iS a unit in order to prevent com-
prtitivc ''.rilling.
12 CONCENTRATION OF ECONOMIC POWER
relatively small lease appeared to be worth, based upon the value of
acreage which by that time might have been developed.
Their primary aim is to lease land as rapidly as possible after it is
discovered and to make every effort to control its production so that
the best possible price can be obtained. As long as a small company
has a lease on the structure it is difficult to hold these reserves.
Mr. E. De Golyer in his testimony before the Temporary National
Economic Committee supports this conclusion. As an authority on
production and sth'« ed by the -Vmerican Petroleum Institute to
testify as their witness, he pointed out that Standard Oil Co. (New
Jersey) had about 2)2 billion barrels of reserves and "are being pro-
duced at approximately 40 percent of the rate averaged for the rest
of the Nation's production." ^^ He claims that this is typical of the
other majors and they maintain these reserves to protect their other
investments in the integrated form. Very few independent producers
are engaged in other divisions of the industry.
•FORM 88 LEASE AND ITS ABUSE
The "88 Form lease" is a standard leas > that came into existence
about 1916, is well known to landowners, and carries with it implied
covenants which have been written into it by the courts. ^^ This lease
protects the landowner and givps him assurance that his land will be
developed in -a reasonable time and not just tied up to the advantage
of his competitor. There have come into existence in the last 4 or 5
years leases which purport to be Form 88 leases. Theiy use the word
"revised" or "special" which materially placed greater burdens upon
the landowner with respect to his remedy for failing to develop the
property.
The reason for maintainir).g the style 88 Form lease is that a
feeling has grown up among landowners that an 88 Form lease is best
and will protect their interests. It is doubtful if the average land-
owner would sign, a lease that did not appear to be an 88 Form. How-
ever, these new leases in fact not only revise but also, as far as the
landowner is concerned, change the so-called standard 88 Form lease.
The main changes in all of them are (1) the change of the term from 5
to 10 years and (2) the change for the breach of the implied covenant.
It is significant that the "OR" lease used from 1901 to 1916 provided
that unless the lessee drills he must pay rental.
The major oil companies have been instrumental in changing this
lease, so that they could lease acreage and wait man.y years before
developing it. It is obvious that this worked to the disadvantage of
the landowner, who was imable to hire sufficient counsel and had
established faith that his interets would be protected. It appears
that the lessor is induced by agents of the majors to execute a lease
upon a form which by its identification he is deceived into believing
is the standard form.
independent's problem of getting drilling permits
Most of the important oil fields are controlled by the majors — that
IS, they have a majority mterest. When an independent has a
" Hearings before the Temporary National Econnmie Committee, Part 14, p. 7393.
" Testimony of Robert C. Knox, Hearings before the Temporary National Economic Committee, Part 15,
pp. 8251-8261.
COMCENTRATION OF ECONOMIC POWER 13
minority interest in a field and wants to drill his own well rather than
pool liis interests, or sell them, he usually has trouble in getting a
permit to drill. An excellent example of this was the Old Ocean
field in Texas which is controlled by major interests^ except a 20-acre
tract held by John W. Dailey. He has been trying to get a permit
to drill, but has been refused several times through the influence of
majors. It was only in October 1939 that the Supreme Court of
Texas overruled the Texas Railroad Commission and granted him a
permit to drill his owii well. In spite of this he still laces the problem
of getting a drilling contractor for fear of their sufferiI^g from the ill-
will of the m.ajors. The details of this typical case were brought out
before the Temporary National Economic Committee by Mr. Dailey.'^
It con.clusively shows how a landowner in Texas was unable to drill a
well on his own land rather than delay drilling or drill jointly with
major owniers who had sufficient wells elsewhere. This makes a big
difference to anyone who has oil in only one possible place and cannot
depend on sources elsewhere. In addition to obtaining control of
crude oil reserves, State and Federal programs in the name of conser-
vation have been sponsored by the majors to restrict production.
CONSERVATION AND STABILIZATION
Conservation usually means that limited resources are saved so that
they may be used by the present and future generations. True con-
servation of oil may be defined as the avoidance of waste in its recovery
or use.'* This means that we should eliminate losses in recovery or
use if they may be avoided without undergoing costs in excess of the
costs involved in suffering the losses. Suppose a new pool has a
deposit of 100,000,000 barrels of petroleum of which 20,000,000
barrels may be recovered by a particular method whereas 40,000,000
barrels maj^ be recovered b}^ a different method at the same, or a lower
average cost per barrel, then it is evident that the first m^ethod repre-
sents waste, which shoidd be avoided. True conservation should not
go bej'ond this type of waste and should not be concerned with produc-
tion control based on estimates of market demand. It should be
directed toward better economy through greater (efficiency.
Stabilization, on the other hand, is applicable to regulative efforts
to obtain improvement in economy, regardless of the effects upon
efficiency. If market demand for oil is so small that effective prora-
tion causes wells to be operated at less than their most efficient rate
proration may damage the reserves by water flooding and trapping
of the oil. Production control or stabilization based on market
demand is essentially a form of monopolistic control supported by the
States.'^ The effect of stabilization may reach back to the oil explora-
tion and conceivably limit that important function. The restriction
of production usually assures the maintenance of desirable prices and
will tend to raise prices. Although the demand for gasoline is con-
sidered fairly inelastic, other petroleum products, such as fuel oil, may
be considered elastic.
" Hcarines before the Temporary National Economic Committee, Part 14, pp. 7291 and 7520.
'* For a thoroueh <li.-.(ii>si.in A the ecoaomies ol conservation and stabilization see Myron VVatkins, Oil:
Stabilization or C'n-or'.at; in. Harper A Bros., New York, lii37: also National Kesources Committee,
Enerey Resources iin<l National Policy, Government Printing Olfiee, Washington, January 190'J.
'» See George VV. .>! » icirii;. 'stabilization of the Oil Industry; its Economic and Legal Aspects," Ameri-
n Eefinr)raic Review, :^l:;^iplenlent, Marclf 1933.
24 CONCENTRATION OF ECONOMIC POWER
ECONOMIC CONSEQUENCES OF PRORATION
The term "proration" is generally used and applied as the equiva-
lent of curtailment or conservation. This is a misleading usage. In
the strict sense of the word proration means the distribution between
the units of a lease, field, or State of a total permitted production.
That is, proration is concerned solely with allocation of a total amount
of allowable production. The determination of how large this total
allowable production shall be is not proration. It must be recognized
that many measures urged under the guise of conservation are not
motivated by considerations of conservation at all but are rather
means for bringing about slow development of a field and consequently
price stabilization.
Proration works a hardship on the nonintegrated operator and works
to the advantage of the majors who have many sources of crude oil.
Wlien the output of wells is restricted, the cost per barrel is increased
and a longer time is required for the nonintegrated operator to amor-
tize his investment. Usually the small operator has a very liinited
amount of capital and is often forced into bankruptcy, since he can
operate his wells only in a limited way. The major interests then have
an opportunity to buy these properties at special prices. As these
independent producers are unable to supply their own refineries or
independent refiners this activity is put at a distinct disadvantage.
Under this system the operator having a limited number of wells is
progressively subjected to lower "allowables." Since the major oil
companies have vast oil lands in States which do not have proration
laws, that is, California and Illinois, together with imports and stor-
age facilities, they can be assured of an adequate supply of crude oil.
Furthermore, the majors who sponsor proration use cracking facilities
and get about twice as much recovery of gasoline, while the independ-
ents use for the most part the straight-run process. The "allowable"
based on the market demand does not take this into consideration.
As a result of proration the price of crude oil is rigid for long periods '^
and when it does change it is rather abrupt as was the case in the fall of
1939 just prior to the forced shut-down in Texas.
APPARENT MOTIVES UNDERLYING PRORATION
It is important to point out again that conservation is directed
toward better economy through the introduction of superior efficiency,
wdiereas stabilization is an attempt to increase the profits of the in-
dustry, regardless of any changes in efficiency.' " Most that has been
done in the oil industry in the name of conservation is really stabiliza-
tion. In times of a shortage of crude oil the rise of a conservation
movement is probably intended to increase the relative recovery and
the more efficient uses of our oil resources. On the other hand,
pressures for conservation which are made by the major interests
during a period of excess production and low prices, are intended
mainly for the purpose of getting a system of production restriction.
Thus, the interest in conservation in 1931 and 1932 after the discovery
of the East Texas field was really a part of the campaign for stabiliza-
tion measures. The majors were threatened by the influence of the
independents, since they did not have adequate storage facilities to
i» Appindix, chart VI. facini? p. 71.
'• ^fvron W. Watkin.<i Oil: Stahiliza'!. n or Conservation, Harper >t Hro, New York, 1937. p. 35.
CONCENTRATION OF ECONOMIC POWER 15
buy this oil and keep it off the market. There was some physical
waste and many public officials supported the measure so as to reduce
these wastes, but for the most part the proposals for proration were
made primarily to solve the problem of instability in the industry.^*
Mr. Amos L. Beaty, former president of the American Petroleum
Institute, testified before the Federal Oil Investigating Committee
in 1934 that stabilization was the primary aim of the oil companies in
proposing Federal quota restrictions on the production of oil.
Watkins and Kemnitzer emphasize in their oil studies that proration
is not primarily a system of conservation of resources and may lead
to waste. ^^ Proration will bring about poor methods of production
if it results in a uniform allowable per well, regardless of the nature of
the underground reservoir. Under such circumstances the rate of
production for some wells is too low and for others too high. Monthly
proration schedules indicate that present State proration schemes are
still based primarily upon a more or less constant allowable per well.
In East Texas, for example, where the independents have very pro-
ductive wells, it is easy to see how this restriction will be to the
advantage of the majors, since it would tend to keep oil off the market.
EARLY EFFORTS AT CONTROLLED PRODUCTION
Due to the rapid rise in stocks of oil in storage and the weakening
of the price structure, the Federal Oil Conservation Board was
established December 19, 1924, by President Coolidge. Petroleum
prices rose sharply in 1925 and 1926. In 1926 most of the industry
did not believe a shortage of oil existed. However, Mr. Henry L.
Doherty, head of Cities Service Co., led a fight for production control,
claiming a shortage of oil was threatened and methods of production
were inefficient. Mr. Charles Evans Hughes, representing tht
American Petroleum Institute, stated that the Federal GiOvernment
had no power to control production and that the industry could be
best assisted by Government permission for intercompany coopera-
tion.^o
By the end of 1926 discoveries had become so numerous and pro-
duction of crude oil so great that stocks of oil in storage were rising
and prices were falling. In that year the Federal Oil Conservation
Board proposed that some. kind of interstate agreement or compact be
made for the purpos3 of restricting crude oil production. Overpro-
duction of oil occurred during the next few years, and the wholesale
price index fell from 100 in 1926 to 71.3 in "^1929. In that year the
Board again proposed an interstate compact to aid in restricting
production. The Board also considered in 1929 a plan of the American
Petroleum Institute for world-wide limitation of production to de-
mand. The Attorney General held that the Federal Oil Conservation
Board had no right to approve any such production-restriction
program.-'
At this time the Federal Government decided it was powerless to
restrict production except by obtainiTig agreements among the pro-
ducing States. A meeting of the (Jovernors of these States was held
in Colorado Springs, Colo., in 1929 for the purpose of seeing how pro-
'* National Resources Committee, Energy Resources and National Policy, Washington: Government
Print intr Odice, January 1939. p. 200. <•
" Myron W. Watkins. op. cit., p. 34: William J. Kemnitzer, op. cit.. p. US.
" FefUral Oil Conservation Board, Public Hearings, May 27. 1926, pp. 13-23.
21 Norihcutt Ely, Oil Conservation Through Interstate Apreement, 1933, p. 17.
15 CONCENTRATION OF ECONOMIC POWER
duction control could be accomplished through joint action. This
particular conference failed and the Board discontinued its efforts.
Production continued to exceed demand and stocks were rising.
In 1931 the Secretary of the Interior declared there was no remedy
except the adoption of an interstate oil compact approved by Con-
gress.-^ The Governors set up an Oil States Advisory Committee
which entered into an informal production accord in September 1931
which lasted until the end of 1932.
CONTROLS DURING THE NATIONAL RECOVERY ADMINISTRATION
The administration of the Oil Code was under the Secretary of the
Interior. Section 9c of the act provided for the prohibition of the
transportation in interstate and foreign commerce of oil produced in
excess of the amount permitted by the proration laws. The code
provided for limitation of imports of crude oil, for restrictions on the
withdrawal of crude oil from storage, for periodic estimates of the
consumer demand, the allocation of production among pools in the
State. Furthermore, it contained provisions whereby the price of
crude oil was based on the wholesale refinery price of gasoline. ^'^
THE CONNALLY ACT
Before the invalidation of the N. R. A., Congress passed on Febru-
ary 22, 1935 the Connally Act as a substitute for section 9c. It
specifically prohibited the movement in interstate commerce of "hot
oil"; that is, oil produced in excess of quotas. The main aim was to
apply the act to the East Texas field: The law has been renewed
from time to time and is in effect now. Generally speaking the majors
have favored this law, but many of the independents have been
critical as was voiced by some witnesses at the hearing of the Tem-
porary National Economic Committee in the fall of 1939,
MARKET CONTROL THROUGH FORECASTS AND STOCK REPORTG
The United States Bureau of Mines makes monthly forecasts of
motor-fuel demand and stocks of gasoline. The estimating of market
demand was taken over by the Bureau of Mines in 1933 and became
the basis of national planning in the petroleum industry. These
statistics are used by the proration autiiorities to limit production to
market demand and therefore assure price stabilization. It is doubt-
ful if a private agency could furnish similar statistics for the oil com-
panies for the purpose of price control and be within the law. The
American Petroleum Institute also publishes w^eekly stock reports and
"Quarterly"' suggestions on supply and demand, although they are
not used officially as are the statistics of the United States Bureau of
Mines, However, they serve their purpose in lessening competition.
" Naticnal Industrial Conference Board, Oil Conservation and Fuel Oil Supply, New York, 1930.
" National Lecovery Administration, Code of Fair Co:npctitian for the Petroleum Industry, Wasliington,
1933.
CONCENTRATION OF ECONOMIC POWER
17
PROGRESSIVE INCREASES IN PROVEN CRUDE OIL RESERVES
It has already been shown that the major oil companies in sponsoring
production control measures, such as proration, have used the argu-
ment that it is a conservation measure. Table 4 indicates very clearly
tiiat the proven reserves of crude oil have continued to increase,
which certainly does not lend any weight to the argument that our
oil supply will soon be gone and we should therefore have production
control. Mr. Gill in his very thorough study " of this subject in 1934
shows that there is (1) no imminent danger of exhaustion of the
petroleum reserves of the United States; (2) that when or if the reserves
should ultimately become exhausted, there exist practically inex-
haustible supplies of other materials from which gasoline could be
produced at prices only slightly higher than the prices now prevailing
for petroleum products. Mr. W. S. Farish, president, Standard Oil
Co. (New Jersey), also supports this latter conclusion. ^^ Since crude
oil reserves have been increasing progressively and arc higher than
ever before, and other sources of gasoline, such as shale and coal, are
almost unlimited in quantity, there is "no real basis for the major oil
companies to press for proration under the name of conservation to
obtaui economic advantages of a stabilized price structure to the
disadvantage of independents.
Table 4. — Comparison of crude oil production since 1859 with cumulated discover-
ies of crude oil, indicating proven crude oil reserves, United States, 1900-38
[Millions of barrels]
Year
Cumu-
lated dis-
coveries
Produc-
:ion since
1859
Indicated
reserves
Year
Cumu-
lated dis-
coveries
Produc-
tion since
1859
Indicated
reserves
1938
■ (1)
38,188
34, 199
31, 755
30,030
25, 910
15.960
(2) '
21. 118
19,970
18, 692
17, 593
13, 149
8,670
(I) -(2)
17, 070
14,229
13, 063
12. 437
12, 761
7,290
1920-..
1915
1910.
1905....
1900.... _
(1)
11, 860
8,935
6,435
5,060
3,360
(2)
5. 430
3,617
2,378
1,514
1,004
(l)-(2)
6,430
5,318
4,057
3,546
1937 ..:..
1936
1935
1930 .
2,356
1925 -
Source: Standard Statistics, Inc., the Petroleum Industry, New York, February 1940. Basic data on
production and discoveries of crude oil compiled by the United States Bureau of Mines.
SUMM.\RY AND CONCLUSIONS
The majors are establishing an increasingly dominant control over
crude oil reserves through leasing activities and pipe line ownership.
At the end of 1939 they had control of 70 percent of the proven re-
serves. S'nce proration programs are not usually in effect in all States
where a particular major operates, and his, holdings of oil lands are
usually quite widespread, he has a distinct competitive advantage over
an ndependent who is permitted to produce oi>ly a small portion of his
requirements in his limited area. This means that the independent
» Stanlfv Gill. .\ Report on the Petroleum Industry, Oulf Publishing Co., Houston, 1934, p. 18.
" U. S. Cong., Petroleum Investigation, Hearings on H. R. 441, 1934, p. 752.
Jg CONCENTRATION OF ECONOMIC POWER
refiner who owns oil lands is forced to operate his small plant only
about half time. Obviously, the fixed charges must be met and this
increases his unit costs; on tho other hand the majors operate at a high
percentage of capacity. The majors through their leasing activities
of oil land, and by following a policy of restricted development, have
obtained a very substantial control over these oil lands — only 10 per-
cent of which are owned in fee by them. Since the majors have a
virtual monopoly of crude oil pipe lines, the only practical overland
means of transporting oil, they are able to post uniform, noncompeti-
tive prices for crude oil purchased in a particular field, and the crude
oil is definitely sold on a buyer's market.
Since there is no apparent danger of exhausting our crude oil re-
serves, the real purpose the majors have in securing proration laws is to
obtain a stabilized price structure to the disadvantage of independents.
CHAPTER IV
CRUDE OIL TRANSPORTATION
THE COMPETITIVE ADVANTAGES OF PIPE LINES
Tlie liquid form of crude oil- makes it adaptable to special trans-
portation through pipe lines and by tankers. Only 3 percent ^ of
crude oil moves to refineries by railroads, owing to the greater efficiency
and lower costs offered by pipe lines and tankers. The crude oil pipe
line system consists of trunk lines and gathering lines which connect
with the lease tanks located near the oil wells and transport the
oil to the trunk line. Thus, the crude oil pipe lines provide a link
between the oil fields and refineries, and the flow of crude oil is prac-
tically continuous from the lease to the refinery. It is safe to say that
nearly all oil moves, through gathermg lines and at least 90 percent
moves through trunk lines before reaching the refinery. It has made
possible the location of refining centers near the market and the
development of vast refineries by the majors. The pipe line affords
the most efficient form of land transportation. Comparative costs per
ton-mile are approximately 8.3 mills by rail, 3.2 mills by pipe line, and
1.25 mills by tankers.- It is probable that the rail cost would be
somewhat lower if a greater volume could be transported. While the
capital costs are substantial and the life of the line limited, the rights of
way are not expensive, the operation of the system is automatic to
a high degree, and there is no problem of two-way traflftc or return
movement of empty facilities. There does not appear to be any
natural competition between crude oil pipe lines and railroads, since
the tariff rate of crude oil pipe lines is usually about half the rail
rate.^
The development of crude oil pipe lines had an important effect
in determining the geographic location of refining. Today mass
production refineries of the majors are located on the Texas Gulf coast,
New York, Philadelphia, and Chicago industrial areas ^ as a result of
pipe line ownership, supplemented by tanker movements from Texas
and Louisiana. New discoveries of crude oil are made more readily
available, thus supporting the rapid refinery expansion. There are
sliifts in the supply of crude oil due to new discoveries and less activity
in older fields which would make it necessary to have a more widespread
location of refineries if it were not for the pipe lines. But, through
pipe lines the majors are able to have an adequate source of crude oil
at all times. The advantage of pipe lines over rail transportation is so
great that no oil company has been able to attain very much impor-
tance in the industry without the use of pipe line facilities.
1 Interstate Commerce Commission, Statistics of Oil Pipe Lines, 1921-37, Statement No. 396, p. 11.
2 Joseph E. Pogue, "Economics of the Petroleum Industry," March 1939, p. 35, citing as authority Lisle,
Tanker Technique 1700-193G, World Tank-ship Publications, London, 1936. p. 9; and hearings before the
Temporary National Economic Committee, Part 14. pp. 7178 and 7476; and Part 15, pp. 8591-8592.
' R. v. A,. Mills, The Pipe Line's Place in Oil Industry, New York, 1935. The conclusion is based on
the tariffs filed with the Interstate Commerce Commission for pipe line and rail rates to identical destinations.
* U. S. Bureau of Mines, Petroleum Refineries, Including Cracking Plants, in the United States, Wash-
ington, January 1, 1939.
19
20 CONCENTRATION OF ECONOMIC POWER
On the question of competitive advantages of pipe lines the Federal
Trade Commission had the following to report : ®
The cheapness of pipe line transportation has enabled the large companies owning
contiprehensive pipe line sj'stems to choose strategic locations for their refineries
near seaports and the larger distributing centers of' the country, while small con-
cerns dependent on rail shipments have been forced to build their plants near the
oil fields.
Owing to their adaptability and advantages, pipe lines are the
strongest means the majors have in competing against independents.
The. system as it exists today is a virtual monopoly of the majors.^
The National Bureau of Economic Research had this comment to
make on pipe lines : ^
Such a system of transportation involves a relatively large capital outlay which,
once made, is sharply subject to the principle of decreasing cost in its operation.
Operating with capital equipment that is specialized, highly automatic, and fixed,
pipe line transportation partakes of the character of a natural monopoly.
The typical independent does not have sufficient capital to build
these lines and his volume of business does not justify it. Therefore,
unless he can use the lines of the majors he is at a disadvantage of
1 to 2 cents per gallon depending on the location of his market.
In 1906 the Interstate' Commerce Commission made a thorough
investigation of the oil monopoly pursuant to a joint resolution of
Congress and found that the Standard Oil Trust established its greatest
control of the petroleum industry through pipe lines.* The control
that the majors have today over pipe lines is in many respects similar
to that- found by the Commission to exist in 1906. Some of the
observations and conclusions that the Commission made in the
report are:
In any industry whoever controls tlie avenues of transportation of either the
raw material or the finished product can speedily drive all competitors out of
existence. The production and distribution of petroleum is no exception to this
rule (p. 6).
It is said that the pipe-line system of the Standard is a natural advantage to
which that company, having created it, is entitled. It is not a natural advantage,
but rather an artificial advantage (p. 6).
While pipe-line tariff's have been filed with the Commission, they are alleged
to be of no actual advantage to the independent operator (p. 14).
More than anything else the pipe line has contributed to the monopoly of the
Standard Oil Co., and the supremacy of that company must continue until its
rivals eivioy the same facilities of transportation by this means (p. 14).
It will probably be found necessary to disassociate in the case of oil, as in that
of other commodities, the function of transportation from that of production
and distribution (p. 14).
THE MAJOR OIL COMPANIES' CONTROL OF CRUDE OIL PIPE LINES
Crude oil pipe line operations arc carried on in 24 States ^ through
approximately 115,000 miles of trunk and gathering lines.'" As of
June 30, 1936, there was a total of 110,580 miles of crude oil lines,
• Federal Trade Commission, Report on Pipe Line Transportation of Petroleum, Washington, 1916,
p. xxxi.
« The investigation made in 1904 by the Bureau of Corporations found the main control of the petroleum
industry to be through pipe lines. See Report of the Commissioner of Corporations on the Petroleum
industry, pt. 1, "Position of the Standard Oil Co. in the Industry" Washington, May 20, 1907, pii. 1 to 38.
■ National Bureau of Economic Research, Price Research in the Steel and Petroleum Industries, New
Vorl<. 1939, p. 87.
' IntiTstato Commerce Commission, Railroad Discriminations and Monopolies in Coal and Oil. A letter
frotn llie Chairman of the Interstate Commerce Con mission submitting a report of an investigation of the
.subject of railroad discriminations and monopolies in oil. Was'iington, January 28, 1907.
' Interstate Commerce Commission, Statistics of Cil Pipe Line Companies, Statement No. 3955, Wash-
ington, Deceiiiber 31. 19.38.
'" Oil and Gas Journal, Tulsa, Pipe Line Edition, September 22, 1938.
CONCENTRATION OF iECONOMIC POWER 21
57,820 miles of which were trunk hnes and 52,760 miles of gathering
lines." This was the last complete survey of crude oil pipe lines,
but the mileage at the end of 1938 can be estimated on the basis of
the percentage change for similar periods of the Interstate Commerce
Commission coverage which is about 85 percent of the industry. On
this basis the total crude oil pipe lino mileage is 61,308 miles of trunk
and 53,558 miles of gathering lines, making a total of 114,866 miles.
The major oil companies had 49,371 miles of trunk lines or 85.4 per-
cent, and 30,284 miles of gathering lines or 57.4 percent.'^ According
to the coverage of the Interstate Commerce Commission, 14 majors
had 89 percent of the crude oil trunk mileage on January 1, 1938.'^
This coverage of the Interstate Commerce Commission applies only
to interstate lines, but this is estimated by the Commission to be over
85 percent of the industry, when compared to the complete survey
made by the United States Bureau of Mines in 1936.
It is to be noted that the majors own substantially less of the gather-
ing lines than trunk lines. As previously mentioned, the trunk lines
extend long distances through important oil fields and are fed by
gathering lines, wliich are usualh' only about 2 to 4 inches in diameter
compared to about 8 inches for trunk lines. Trunk mileage increased
32 percent from 1929 to 1938, wliile gathering lines decreased 8 per-
cent.'* Most of the independent refiners are located in the field and
when they use their own oil, their system is functionally considered a
gathering system, which explains to some extent why their ownership
of gathering lines is greater. Also, as already indicated, the majors
buy much of their crude oil and often the producer who sells to the
major owns his own gathering lines wliich connect to the trunk lines.
The main control is through the long distance interstate trunk lines,
89 percent of which are owned by the majors.
THE EFFECT OF PIPE LINE PROFITS ON COMPETITION
The earnings of the pipe line divisions or subsidiaries of the major
oil companies are by far the most profitable. All the major oil com-
panies, except Standard Oil Co. of California and Union Oil Co. of
California, make annual reports to the Interstate Commerce Commis-
sion, either through subsidiaries or jointly owned pipe lines. For the
year 1938, the income of the majors was 97.7 percent of the total
income reported; the investment in carrier property was 93.8 percent
of the total ;^and the rate of return of the major group was 26.7 per-
cent.'* Compared to this return the independents made 9.4 percent.
There was comparatively little change in these earnings during the
depression and the last 15 years.'® The Interstate Commerce Com-
mission had this comment to make on earnings:'^
During the period covered by the questionnaire of 1933, the larger pipe line com-
panies, especially those affiliated with large oil companies, have made earnings
through the operation of their common carrier pipe lines which are startling in
view of the fact that they were made during a time of widespread depression.
" V. S. Bureau of Minos. Snrvev of Crude Oil in Storape. Washincton, 1936-37, p. 44; soo also appondix,
charts XUI. p. 80, and XIV, facing p. 80.
" Appendix, chart XHI, p 80.
" Appendix, chart XV, p. 83.
" Interstate Commerce Commission, Statistics of Oil Pipe Line Compunies, Statement No. 395.S, Wash-
ington, 1938, D. 4.
» Compiled from annual reports to the Interstate Commerce Commi.s.^iou for 1038.
" Hearings before the Temporary National Kconomic Committee. I'art 14-.\, p. 7727.
" Interstate Commerce Commission, "Reduced Pipe Line Kates and (uithcring Charges," Docket
26570, p. 19 (mimeographed).
27852.{ — 41— No. .^O .{
22 CONCENTRATION OF ECONOMIC POWER
The major oil companies are primarily interested in the over-all
profit on all operations. It is clear that the major group have sub-
stantial profits to take business away from independent refiners and
marketers. The independent must show a profit on his business of
refining or marketing or go out of business. Such is not the case with
the majors. In order to keep down independent refiners and marketers
they often take losses on these operations. Twelve major oil com-
panies reported a break-down of earnings for 1938 to the Temporary
National Economic Committee. This tabulation revealed that 9 of
the 12 had a deficit on refining; 7 of the 12 had a deficit on marketing;
only 1 company had a deficit on crude oil production; and no losses
were reported on transportation, which also included gasoline pipe
lines and oil tankers. ^^
The exorbitant rates charged by the majors, in addition to the high
minimum tenders, resulted in a complaint being made to the Inter-
state Commerce Commission in 1934. An investigation of the
conditions was ordered by the Commission .under the direction of J.
Paul Kelly, examiner. Mr. Kelly recommended in his proposed
report that the pipe line companies be required "to show cause why
the rates charged by them for the transportation of crude petroleum
oil by pipe line should not be found to be unreasonable for the future
to the extent that they may exceed 65 percent of the rates in effect
on December 31, 1933".^^ The pipe line companies filed exceptions
to the examiner's report. A joint brief filed by two oil companies in
answer to the exceptions stated: ^°
The margin between the costs of pipe line transportation and the published
rates must be narrowed, or else those refiners who do not own pipe lines will
be forced out of existence.
The brief further pointed out that the annual reports to the Com-
mission show dividends paid by 17 major pipe line companies from
1929 to 1933, inclusive, equaled 98 percent of the aggregate total
investments of all these companies on December 31, 1933. The
examiner also recommended minimum tenders of not more than 10,000
barrels. In' December 1940 the Interstate Commerce Commission
entered an order requiring ^^ crude oil pipe line carriers to show cause
why the Commission should not order rate reductions amounting to
as high as 55.01 percent of rates in effect on December 31, 1935. The
Commission's decision finds that 8 percent annual return on valuation
is fair and ample, after considering the hazards of unpredictable future
volume of traffic.^^
Even v/hen independent refiners do ship over the pipe lines of major
oil companies they are still at a competitive disadvantage since rates
are much higher. Thus the majors can use this difference to put the
independent at a competitive disadvantage. It is generally agreed
that the costs of transportation are far out of line with rates charged.
One example may be given to illust.ate this point. Standard Oil Co.
(Indiana) owns the Stanolind Pipe Line Co., which extends from fields
in Oklahoma and Texas to the parent company's huge mass-production
refinery at Whiting, Ind, (near Chicago), a distance of over 500 miles,
" Hearings before the Temporary National Economic Committee, Part 17-A, pp. 10040-10042; National
Petroleum News, Cleveland. November 1, 1939, p. 10.
i» National Petroleum New.'; July 15, 1936, p. 20; see also I. C. C. Docket 26570— proposed report dated
February 1, 1940, p. 25.
'0 Brief filed by The Standard Oil Co. (OJhio) and National Refining Company, I. C. C. Docket 26570.
'■ Interstate Commerce Commission, "Reduced Pipe Line Rates and Gathering Charges," Orderof
December 23, 1940, Docket 26570.
/
CONCENTRATION OF ECONOMIC POWER 23
During 1938 the Stanolind Pipe Line Co. transported 34,485,625,000
barrel-miles of crude oil at a cost of $11,050,478, which included all
operating expenses. State and Federal taxes, and fixed and contingent
expenses. This is an average cost of only 0.032 cent per barrel-mile.^^
An examination of the company's tariffs filed with the Interstate
Commerce Commission discloses that the rate from Oklahoma to
Whiting, Ind., was 34.5 cents per barrel, ^^ or 0.069 cent per barrel-mile
based on 500 miles. This shows unquestionably that the cost is less
than half the tariff rate which must be paid by independents if they
do ship over the pipe line.
^-Ir. W. M. V. Spla\vn, a member of the Interstate Commerce
Cormiiission, in his well-known study of pipe lines had this to say on
the effect of the noncompetitive rates of major pipe line companies: ^*
Speaking generally, the earnings of pipe line companies are high at the rates
charged. It is urged that this fact provides an opportunity for the integrated
groups which own' the pipe lines to recoup from such earnings the losses they may
sustain in other branches of the industry.
Mr. Louis ■'J. Walsh, an independent refiner of Texas, testified
before the Temporary National Economic Committee that it costs
17K cents per barrel to get oil from the East Texas field to the Gulf
coast by major pipe lines, but the cost to the majors is only 5 cents
per barrel.
NONCOMMON CARRIER STATUS OF PIPE LINES
The large integrated oil companies opposed making pipe lines
common carriers. The passage of the Hepburn Act in 1906 making
pipe lines common carriers and the upholding of this act by the
Supreme Court in 1914 was an attempt to check the Standard's
control over pipe lines. However, these were of little help to the
independents. The majors' regulations requiring minimum ship-
ments of 25,000 to 100,000 barrels had an important effect in keeping
the independents from using the lines. It does not matter how high
the pipe line tariffs are so long as they transport for themselves. So
far the record indicates they are common carriers in name only and
not in fact. Another consideration is that it is very costly for the
independents to bring cases before the Interstate Commerce
Commission. . •
The Federal Trade Commission had the following point to make
concerning restrictions in the pipe line tariffs: ^^.
The tariffs filed with the Interstate Commerce Commission under this act by the
Standard lines required a minimum quantity for shipment so large as to preclude
the use of these lines by independent refiners in most cases. As a consequence
they continued to serve only Standard refineries.
The Independent Petroleum Association of America made a study
for 1936 of oil transported by major pipe line companies for companies
having no interest in the pipe line.^^
Ten companies averaged transporting only 8.73 percent of the total
oil transported for companies having no interest in the pipe line,
1 Annual report of Stanolind Pipe Line Co. to the Interstate Commerce Commission for the year ended
December 31. 1938.
" Public Tariff Section, Interstate Commerce Commission.
" U. S. Cong., Report on Pipe Lines, H. Kept. No. 2192, 1933, pt. I, p. Ixjvil.
» The Federal Trade Commission, Petroleum Industry, Prices, Profits, and Competition, 1928. Washing-
ton, p. 73.
»« Independent Petroleum Association of America, Pipe Lines— Imports — Prices, November 1938, p. 10.
24 CONCENTRATION OF ECONOMIC POWER
Three of the companies reported that they only transported their own
oil and operated as a plant facility.
The Shell Union Oil Corporation, which operates an interstate gaso-
line pipe line from Roxana, 111., to Lima, Ohio, has refused to file tariffs
with the Interstate Commerce Commission. This appears to be a
clear violation of the Hepburn Act of 1906 declaring interstate oil
pipe lines common carriers. The Shell Co. claimed it built the line
as a plant facility and should not transport for others.
NON-COMPETITIVE RESTRICTIONS ON INDEPENDENT SHIPPERS
Prior to the Supreme Court decision holding interstate pipe lines
to be common carriers, the large Standard pipe line companies had
always refused to act as common carriers for independent oil com-
panies, although they acted as carriers for the various Standard
refining companies. For a number of years subsequent to the Supreme
Court . decision, through monopolistic shipping requirements these
pipe lines entirely nullified the common carrier law ^^ so far as east-
ward shipments from the Mid-Continent oil field to independent re-
finers were concerned. For example, beginning in 1914 the Standard
lines running east required a minimum tender of 100,000 barrels for a
single shipment. It is not difficult to see what this means to the
independent shipper. It means that he must build storage tanks to
accumulate all this. The typical independent refiner at that time
could only use 5,000 barrels per day. From an examination of the
tariffs on file with the Commission today, the typical minimum tender
on crude oil is 50,000 barrels. In many cases it is 100,000 barrels.
The necessity of a refinery having adequate pipe line connections
of its own is well illustrated by the considerations which led the
Standard Oil Co. (Indiana) to acquire a 50 percent interest in the
Sinclair Pipe Line Co. Officials of the Standard Oil Co. (Indiana)
contemplated building in 1920 a pipe line from the Tulsa, Okla., area
to Chicago, 111., to insure an adequate supply of crude oil. Prior to
that time thp company was using Sinclair's pipe lines, but due to the
increased costs it could no longer do it. Finally an offer was made by
Sinclair whereby Standard Oil Co. (Indiana) bought the 50 percent
interest in the line.^^ In this connection it is well to point out that all
the major oil companies have crude oil pipe line facilities which the
independent cannot afford because of his lack of sufficient capital.
THE PIPE LINE COMPANIES' CONTROL OVER CRUDE OIL PURCHASING
• As already pointed out the major group purchases a substaiitial
amount of crude oil, about 35 percent of their refinery requirements.
In the buying of crude oil from a given field there are seldom enough
buyers to suggest a competitive market and in most cases the major
with the trunk line sets the price. It is true that producers may use
tank cars to transport their oil to the refineries or market, but this is a
very expensive type of transportation. As a measure of this control,
85.2 percent of the total crude oil produced east of California in 1937
found its outlet through pipe lines controlled by 15 major oil com-
panies. Standard Oil Co (New Jersey) alone controlled 20.4 per-
cent of the total.
2' The Federal Trade Commission, Tlie Petroleum Industry: Prices, Profits, and Competition, Washing-
ton, 1028. p. 40.
J« Ibid., p. 41.
CONCENTRATION OF ECONOMIC POWER 25
This ownership of trunk pipe hnes makes it possible to fix the
price of crude oil. Furthermore, in fields where there is more than
one major the crude oil prices are the same. In the vast East Texas
field where there are many independent producers and six major pipe
line companies bu\nng crude oil, the posted prices of each of the six
companies are the same and have changed at the same time.^^ This
suggests an agreement to work together to control crude oil prices.
In the early da3's of the industry cru(''^ oil was bought and sold
on oil exchanges. This method started in Pennsylvania and con-
tinued to about 1895.^° During this period the market was speculative
and the proportion of crude oil sold upon the exchange decreased until
in 1895 the Seep Purchasing Agency of Oil City on behalf of Standard
Oil Co. posted a notice that thereaher the prices paid by it to oil pro-
ducers would be what the market would justify and not necessarily the
price bid on the exchange. This agency purchased for Standard Oil
Co. 80 percent of the crude oil produced in Pennsylvania, and through
its position of transportation fixed the price of crude oil.^^ This led
to the posted price system we have today. It is now a buyer's market
due to pipe lines. In tliis connection it is interesting to compare the
way such things as wheat and cotton are sold with that of oil and
copper, where large corporations post their own price.
Standard Statistics, Inc., had the following conaments to make
concerning pipe line profits and control of the crude oil market.^^
There is no free market in crude oil, chiefly because virtually all purchases are
made through the concentrated pipe line systems.
The price of crude oil is thus artificial, and partly because of this, accounting
methods and increasing proration, the industry has become geared to the price
of crude oil. It is an important determinant of profits and a major factor affect-
ing expansion and development. The division has thus been one of the chief
sources of strength for major oil companies, which have emphasized the develop-
ment of crude oil interests.
DIVIDENDS PAID TO THE MAJOR OIL COMPANIES BY THE PIPE LINE
AFFILIATES
After the Supreme Court decision in 1914 holding interstate pipe
lines to be common carj'iers subject to regulation by the Interstate
Commerce Commission separate corporations were organized by the
majors to take over the pipe line business formerly operated as depart-
ments of an integrated business. This action was taken largely
because of the desire to avoid furnishing reports to the commission on
tlit>ir entire business. Today all except four of the pipe lin^^ of majors
are operated as subsidiary companies which pay divi4cnds to the
parent company. The effect of these huge dividends on independents
has already been discussed. '
Some measure of the dividends paid may be seen by comparing the
dividends declared with capital stock. From 1929 through 1937 the
average ratio of dividends declared to capital stock was 33.2 percent.^^
At this rate the pipe lines soon pay for Lhemselves. Only one pipe
line ever became bankrupt.
"Natural Fctroletini Xews, Cleveland, Oil Price Handb'-jk;; see also appendix, chart VI, facing p. "1.
21 Federal Tr.<>de Commission, Petroleum Industry: Prici , 'rofits, and Competition, Washinpton, 1928.
p. 101.
'1 r. IT. Montapup, The Rise and Progress of the Stan..,iri Oil Co., Uarper & Bros., Xew York, i90S.
p. 131.
" Standard Statistics, Inc.. The Petroleum ludustry, >' ■« Vork, February 19-l().
'■' Interstate Commerce Comnii.ssion, Statistics of Oil ] ip= Linos, 1921-.')7. Washington, February 1036.
26 CONCENTRATION OF ECONOMIC POWER
JOINTLY OWNED CRUDE OIL PIPE LINES
In order to lessen competition and to make their crude oil trans-
portation more profitable, 8 of the 20 major oil companies have com-
bined with 1 or more other majors to build and use the facilities on a
common basis.^^ No independent has any interest in these lines.
These pipe lines are located in the Mid-Continent area, serving the
majors' refineries on the Gulf coast.
THE CONTROL OF OH TANKERS BY MAJOR OIL COMPANIES
It has already been mentioned that tankers furnish the lowest cost
of all transportation, being about half as much as pipe lines. No
crude oil pipe lines run from the Mid-Continent fields to the Atlantic
seaboard. Most of the tanker movements of crude oil and refined
products is from the Pacific coast and Gulf ports to the refineries of
the major oil companies on the Atlantic seaboard. There are no in-
dependent refiners, located on the Atlantic seaboard. Table 5 indi-
cates the ownership of oil tankers. The five majors which do not
have tankers operate in the Midwest area almost exclusively. From
this table it can be seen that 15 major oil companies owned 87.2 per-
cent of the dead-weight tonnage of oil tankers as of September 30,
1938. Only a small part of the 12.8 percent are owned by inde-
pendent oil companies, but for the most part they are owned by oil
transporting companies.
THE OIL TANKER POOL
Just as the pipe lines have been controlled hj the majors, so has
the use of tankers been a further control. The rapid development of
tankers has been during the past 15 years. They are used extensively
in export and import trade of oil, transporting from 70,000 to 165,000
barrels at a time. Similar problems to pipe lines are encountered by
the independents in that it is necessary to build excessive storage facili-
ties so as to store enough crude oil or gasoline to make a shipment.
In the summer of 1932 a number of major oil companies formed a
so-called "Oil Transport Management Conference," which was essen-
tially a tanker pool and was finally embodied in two agreements dated
September 10, 1932. One of these agreements set up a basis under
which all the tank steamers under the American flag would join a pool
to stabilize the oil tanker business and theoretically place the tankers
in the category of common carriers. The other agreement provided
the conditions under which pool members and others were to use these
oil tankers. Briefly, the plan consisted of operating the tankers so
that the major oil companies owning tankers, who were members of
the pool, would have tankers at one rate, and the independent oil
operators, who owned no tankers, would pay a rate twice as high, the
difference between the two rates being given to major companies as a
rebate.^^ The following paragraph is a resume of Mr. Louis J. Walsh's
analysis of the tanker pool.^^
3* Interstate Commerce Commission, annual reports submitted by pipe line companies for the year
ended December 3!, 193Q.
" Statement of Louis J. Walsh, hearings before the Temporary National Economic Committee, Part 14,
p. 7574.
•» Idem.
CONCENTRATION OF ECONOMIC POWER
27
Table 5. — Dead-weight tonnage of oil tankers under American registry owned by
major oil companies, September SO, 1958
Name of company
Dead-
weight
tonnage '
Percent of
total
Cumula-
tive per-
centage
Standard Oil Co. (New Jersey)
Socony-Vacuum Oil Co., Inc..
Qulf Oil Corporation
The Texas Corporation
Sun Oil Co
The Atlantic ReHning Co
TideWator Associated Oil Co..
Standard Oil Co. of California.
Cities Service Co
The Pure Oil Co
Standard Oil Co. (Indiana)
Union Oil Co. of California
Consolidated Oil Corporation..
Richfield Oil Corporation 2
Continental Oil Co
15 major companies
All companies
957, 792
541,921
329, 090
282,411
231, 569
202, 843
202, 108
192, 942
158, 580
124, 432
113,031
105, 434
101,712
68, 780
22,005
23.0
13.0
7.9
6.8
5.6
4.9
4.8
4.6
3.8
3.0
2.7
2.5
2.4
1.7
.5
23.0
36.0
43.9
50.7
56.3
61.2
66.0
70.6
74.4
77.4
80.1
82.6
85.0
86.7
87.2
3, 634, 650
4, 168, 450
87.2
100.0
' Capacity for carryine dead weight or the difference between load displacement and light displacement.
» Controlled by Consolidated Oil Corporation and Cities Service Co., through stock ownership, deben-
tures, and warrants.
Source; U. S. Maritime Commission, Division of Research, Special Report 2838, Washington, October
1938.
It was a pool of only 16 percent of the tanker business of the member
major oil companies. Each of the majors was to give to the pool 16
percent of its oil transporting trade and reserve outside of the pool,
vessels adequate to handle 84 percent of the business, which tankers
had previously operated at cost. The pool management was to
operate vessels over the tonnage required to move 84 percent of the
member companies' business, if all this tonnage was required to move
the 16 percent remaining business. If not required, certain tankers
w^ere to be laid up so as to produce a balance between requirements of
supply and demand. For the tankers laid up, the owners were to
receive a fee calculated on a barrel basis sufficient to cover their
"lay-up" charges. All users of the pool tankers were to pay 42 cents
per barrel, the difference between that price and the cost of about
17 cents being used to pay the laid-up tanker charges and as a profit
to the pool members. Thus an independent oil shipper not owning a
tanker would have to pay 42 cents per barrel for his transportation,
whereas a member's cost would be about 17 cents for 84 percent of
his transportation, 42 cents for 16 percent, or an average of about
21 cents per barrel — just about one-ha^lf the transportation cost of
the independent.
Tanker rates on. No. 2 fuel oil from the Gulf coast to the Atlantic
seaboard increased 400 percent (20 to 80 cents per 42-gallon barrel)
from September 16 to December 16, 1940. During the same period
the Gulf coast price of No. 2 fuel oil decreased, but the price for the
same grade on the Atlantic seaboard increased rather sharply. The
Defense Commission denied that this situation was due to the defense
program, explaining that these price increases were not due to a
shortage of tankers, inadequacy of storage stocks, or increases in
operating costs.^'' Since the majors which market on the Atlantic
seaboard operate their own tankers and account for over 90 percent
of the fuel-oil business, it is difficult to see how the increases in pub-
lished tanker rates could justify the greatly increased fuel-oil prices.
" .National Defense Advisory Commission, Press Release 332, January 2, 1941. .,,1
2^ CONCENTRATION OF ECONOMIC POWER
SUMMARY AND CONCLUSIONS
The major oil companies have their greatest control in the trans-
portation of crude oil. They have 85 percent of the crude oil trunk
lines and 87 percent of the oil tankers, which offer by far the lowest
cost transportation. Even though interstate pipe lines have been
declared common carriers by law, shipping restrictions in the w^ay oi
excessive rates over costs and high minimum tenders have prevented
most of the independents from using them. This makes it possible
for the majors to control the crude oil market and assures them a
regular supply of crude oil from the wells to their concentrated refin-
ing centers. Furthermore, the unusually high earnings made by the
pipe line companies have been used to subsidize other divisions,
especially marketing. The control of transportation today by the
majors appears in many respects to be just as complete and effective
as was the case of the Standard Oil Trust.
CHAPTER V
REFINING
THE FUNCTION OF REFINING
The function of oil refineries is to manufacture petroleum products
from crude oil, which has no other commercial value excepting the
heavier crude oil of California, used to a limited extent for boilers.
A discussion of the teclmical aspect of refining is not to be covered
other than to point out the basic principles of refining.^
The principles of oil refining are simple, but in the large plants they
are very complicated and technical, owing to a variety of processes.
The simplest description is that crude oil is put in a still or tank and
heat is applied under the still. Wlien this is done, the crude oil gives
off vapors which pass through condensers, which have a series of
openings from which the different products pass to water-cooled
condensers and then to the storage. Gasoline is the lightest and
passes off first with the least heat, next comes kerosene, then gas oil,
and finally lubricants. The large refineries of the majors have
advanced processes which depart from this basic fundamental. The
demand for gasoline has increased greatly during the automotive era,
and processes have been developed to increase the recovery of gasoline
from crude oil. Evidence of this is that the recovery of gasoline in
1920 was 26.06 percent of the total; in 1939 it was 44.9 percent. This
has been due mainly to the cracking process; that is, breaking down
under heat and pressure some of the heavier products into gasoline.
Cracking and other processes have been developed intensively by the
majors and are best adapted to large-size units.
The summary of percentage yields of refined products is given in
table 6. Although the average recovery of gasoline is about 45
percent today, there is a wide range for different areas and refineries.
For example, in 1937 the average yield in California was only 33.2
percent, while the average of the Chicago area was 55.6 percent.
This varies even more by types of refineries. Therefore, the recovery
of gasoline is rather flexible, depending on demand, kind of crude oil,
and type of refinery used.
T.^BLE 6. — Percentage distribution of the recovery of refined products from crude oil
in 1938
Product
Percent
of total
Product
Percent
of total
Gasoline
44.3
5.5
13.0
25.3
Lubricants
2 6
Kerosene
' 9.3
Gas oil and distillate fuel oils
Total ...
Residual fuel oils
100.0
1 Does not represent the 1 percent excess rerun of gasoline and other refined petroleum products over the
percentage produced.
Souice: U. S. Bureau of Mines, Crude Petroleum and Petroleum Products, 1939, p. 49.
' For a thorough discussion of the technical aspect of petroleum refining, see H. S. Bull, American Petro-
leum Refining, D. Van Nostrand Co., New York, 1930.
29
30 CONCENTRATION OF ECONOMIC POWER
THE LOCATION AND CONCENTRATION OF PETROLEUM REFINING
During the early period of the oil industry the location of refineries
was influenced to a considerable extent by the development of new-
oil fields, but by the use of inexpensive transportation facilities the
major oil companies have developed refining centers. On January 1,
1940, there were 547 refineries located in 34 States. However, some
of the States have comparatively little refining capacity; 10 States
have 90 percent of the total operating capacity, with Texas and
California having 50 percent of the total. ^ Furthermore, the Gulf
coast has 27 percent of the refining capacity, California has 21 per-
cent, and the east coast has only 15 percent. This reflects the
importance of tanker and pipe line transportation in the location of
the industry.
The range in the size of operating plants is given as of January 1,
1938, in table 7. This table indicates that most of the capacity is in
the large units. No independent has any comparatively large re-
finery. The majors who own the large refineries get the advantages
of mass production and turn out as many as 300 different products.?
While smaller refineries can be constructed with approximately the
same physical efficiency as large ones, the economic advantages of
large-scale operations in concentrated markets, or on the seaboard,
have tended to develop refining on a mass-production basis. Inde-
pendent refiners are usually located in or near the oil fields because
of transportation disadvantages, and their market is limited.
Table 7. — Frequency distribution of the size of petroleum refineries, Jan. 1, 1938
Kauge of daily capacity
Percent of
total
Range of daily capacity
Percent of
total
Under 10,000
21.3
25.6
15.3
50,000 to 99,000
12.9'
10,000 to 24,000
Over 100,000
24.9
25,000 to 49 000
Total
100. a
Source: Joseph E. Pogue, Economics of the Petroleum Industry, Chase National Bank, New York, 1939,
p. 36.
During the period from 1928 to 1930 the majors acquired inde-
pendent refiners located on the Atlantic seaboard. Standard Oil
Co. (New Jersey) bought Beacon Oil Co.; Continental Oil Co. pur-
chased Prudential Oil Corporation; Shell Union Oil Corporation
bought New England Oil Refining Co.; and Cities Service Co. pur-
chased Warner-Quinlan Co. These purchases left no independent
refiners on the Atlantic seaboard. So today there are no independent
refiners on the Atlantic seaboard and only 16 on the Gulf coast.
Texas had 101 operating refineries on January 1, 1940, with a
combined ciaily capacity of 1,289,925 barrels per day, which included
29 refineries on the Gulf coast with a combined capacity of 1,034,600
barrels per day.* Compared to this, 9 major oil companies have
13 refineries located on the Texas Gulf coasit with a combined daily
capacity of 901,000 barrels per day. This represents 90 percent of
the capacity in this area or 71 percent of the capacity of all Texas.
' U. S. Bureau of Mines, Petroleum Refineries. Including Cracking Plants, Washington, January 1, 1940.
3 See the Texas Co., Petroleum Products, New York, 1939.
♦ U. S. Bureau of Mines, Petroleum Refineries, Including Cracking Plants, Washington, January 1, 1940,
pp. 25-28.
CONCENTRATION OF ECONOMIC POWER 31
The size of these major refineries ranges from 25,000 to 135,000 with
an average of 77,000 barrels per day. On the other hand, the aver-
age of the 16 independent refineries in this area is only 8,000 barrels
per day.
THE OWNERSHIP OF REFINERIES AND CRACKING PLANTS BY MAJOR OIL
COMPANIES
The major oil companies had 65.5 percent of the crude-oil refining
capacity on January 1, 1926, and 75.6 percent on January 1, 1938,
which indicates a growth in concentration of 10.1 percent; and they
all have cracking plants which amounted to 85.2 percent of the total
on January 1, 1938.^ The few independents who do have cracking
plants must pay royalty to the majors who control the patents on
cracking. The"^Standard Oil Co. (New Jersey) has 10 percent of the
crude-oil and cracking capacity, through refining subsidiaries. Six
majors own 45.2 percent of the crude-oil capacity and 53.5 percent
of the cracking capacity.®
THE CONSEQUENCES OF OIL CRACKING PATENT MONOPOLIES
The control of patents is one of the strongest weapons the majors
have in refining. They apply the profits received from independents
who pay them substantial royalties when their patents are used. The
majors are able to harass independent refiners for alleged infringement
of patents. On the other hand, the independent refiner does not have
sufficient capital to defend himself in court through long and expensive
litigation.
The tendency of the major group is to own their patents through
jointly owned companies. For example, the Hydro Patents Co. is
jointly owned by the Texas Corporation, the Pure Oil Co., the Stand-
ard Oil Co. (Ohio), Skelly Oil Co., Gulf Oil Corporation, and Standard
Oil Co. (Indiana) ; the five other important patent companies are each
owned jointly by from two to five majors. This suggests their ability
to solve the problem of the use of patents. All the majors own jointly
or are affiliated with oil patent companies. The independents do not
own patents, but by paying high royalties may usually use them. To
that extent the majors are at a competitive advantage and can exercise
considerable control over the independent refiner.
Table 8 gives some indication of the extent to which the major oil
companies arc affiliated with oil pat^ nt companies. Standard Oil Co.
(New Jersey) is by far the most prominent company in this respect,
its main control being in the cracking processes and through its one-
half interest in Ethy) Gasoline Corporation.
In a recent licensing agreement among Universal Oil Products, the
Texas Corporation, Gasoline Products Co., and several others, Uni-
versal Oil Products Co. purchased nonexclusive licensing rights under
patents owned by the others. This action ended much patent litiga-
tion among the majors and prevented the possibility of nullifying the
patents.' It is now extremely rare to hear of two majors suing each
other for patent infringement. However, numerous independents are
sued or threatened.
» I". S. Bureau of Mines. The percental is based on the annual survey of petroleum refineries, including
cracking plants.
• Hearing before the Temporary National Economic Committee, Part 14-A, pp. 7801 and 7802.
' W illiam J. Kemnitzer, op. cit., p. 1.
32 CONCENTRATION OF ECONOMIC POWER
Table 8. — Affiliation of major oil companies with oil patent companies
Name of company
Number of
companies
with which
afliliated
Name of company
Number of
companies
with which
affiliated
Standard Oil Co. (New Jersey)
10
2
5
8
2
7
2
3
2
1
Phillips Petroleum Co
4
The Atlantic Refining Co
4
Socony-Vacuum Oil Co., Inc
Standard Oil Co. (Indiana)-..
The Pure Oil
Union Oil Co. of California
4
4
The Ohio Oil Co 1
1
The Texas Corporation
Sun Oil Co ..:
Continental Oil Co _.
2
2
Mid-Continent Petroleum Corpora-
tion
The Standard Oil Co. (Ohio)
Skelly Oil Co
Consolidated Oil Corporation
2
Tide Water Associated Oil Corpora-
1
1
Source: William J. Kemnitzer, Rebirth of Monopoly, Harper & Bros., New York, 1938, p. 173. Data are
based mainly on "Pooling of Patents," U. S. Cong., pt. IV of the hearing on H. R. 4523 in 1936.
THE REFINERY ''PRICE SQUEEZE"
East Texas affords the best example where the refinery price squeeze
occurred. It was discovered by an independent and generally speak-
ing the property of the field was owned by a comparatively large
number of individuals. A rush to this field was made by the inde-
pendents. The cost of production was so comparatively low that the
independent producers and refiners continued to produce and compete
with the majors, although the price of crude oil had dropped very
sharply. The independents were willing to operate on a very narrow
margin and depended on volume. The majors claimed that there was
waste, but it appeared to be economic rather than physical waste.
After the proration system, which the majors sponsored, was in
effect, the situation was much different. Prior to this, many of the
independent refiners could supply all the crude oil they needed from
their ow^n wells, but now they were forced to buy most of their crude
oil on the open market.^ The price that the independent had to pay
for crude oil and receive for gasoline was determined by the posted
prices of the majors. In order to control or eliminate these inde-
pendents, the majors applied what is known as the refinery "price
squeeze" by posting the price of crude oil high while the price of gaso-
line remained relatively low. This is especially indicated by table 9.
Table 0. — Ratio of crude oil and gasoline prices in East Texas, 1933-37
Crude oil
Gasoline
Crude oil
Gasoline
prices in
prices in
Ratio 3
prices in
prices in
Ratio 3
Year or
dollars per
cents per
(l)-=-(2)X100
Year or
dollars per
cents per
(l)-f-(2)X100
month
barrel '
gallon 2
month
barrel '
gallon '
(1)
(2)
(3)
(1)
(2)
(3)
1933
0.65
3.1
21.0
1937-Con.
1934
1.00
3.7
27.1
May
1.29
5.3
24.3
19.35
1.00
1.4
22.7
June..
1.35
5.3
25.4
1936
1.14
4.8
23.7
July
1.35
5.2
26.0
1937:
August
1.35
5.2
26.0
January...
1. 15
4.6
25.0
September.
1.35
5.1
26.4
February..
1.27
4.7
27.0
October
1.35
4.9
27.5
March
1.27
4.8
26.4
November.
1.35
4.6
29.3
April
1.27
5.2
24.4
December .
1.35
4.2
32.1
1 Posted prices in dollars per 42-Kallon barrel for 40° A. P. I. gravity and above at wells.
' Quoted prices per gallon of gasoline, 62 octane and below, at refinery; from March to December 1937 prices
are for 60-62, 400 e. p. gasoline.
^ This is the formula used for determining the ratio of gasoline and crude oil prices as a part of the N. R. .\.
oil code.
Source: National Petroleum News, Cleveland Oil Price Handbooks, 1933 to 1937.
' Compare observations made by Dorsey Ilager. op. cit. Tie points out on p. 380: "Many snia 1 rcfin.^riv^s
are forced to cense operations at such times, for when crude oil is scarce a small concern without its own oil
supply cannot obtain enough oil to enable it to operate without paying high premiums for crude oil."
CONCENTRATION OF ECONOMIC POWER
33
This table shows that the ratio of the price of crude oil the inde-
pendent bought and the gasoline he sold increased from 21.0 to 32.1.
It is to be noted that Standard Statistics, Inc., in its survey of the
petroleum industry made a long-term forecast as follows: "At some
future date, a distinct price squeeze on the refining division is quite
possible." ^ In 1939 this comment was made: "Because of the price
squeeze which has already taken place in the refining division * * *" ^°
MORTALITY OF EAST TEXAS INDEPENDENT REFINERS
When the great East Texas oil field was discovered in 1930 local
people began to build refineries; During this period up to January 1,
1938, 155 independent refineries had been built in the field and only
1 by a major. The greatest number located there at any one time
was 74 on January 1, 1935. Today there are only 3 independent
refiners operating in the field. These figures are takeSQ from the an-
nual refinery statistics of the United States Bureau of Mines. This
extremely high mortality was due to the refinery price squeeze and
proration laws. It must be remembered that the majors can buy oil
from many sources and the effects of proration are not the same as to
the independents who could not buy or produce enough of their own
oil under the laws to keep their refineries going. Table 10 shows how
the capacity of the majors grew while the independents declined.
Furthermore, the operating capacity of the majors' refineries con-
nected by pipe lines with the East Texas field was over 99 percent o^
full capacity. Changes in the maximum daily refinery capacity of
East Texas independent oil companies as compared with major oil
companies' maximum refinery capacity located in territory where the
supply of crude oil from East Texas field was available is included.
Table 10.- — Contrast of refinin'g and cracking capacity of the major and independent
groups, Jan. 1, 1932, to.Jan. 1, 1938
Date
Straight-run capacity
Majors
Independ-
ents
Cracking capacity
Majors
Independ-
ents
Jan. 1, 1932
Jan. 1, 1933
Jan. 1, 1934.
Jan. 1, 1935.
Jan. 1, 1936
Jan. 1, 1937.
Jan. 1, 1938
714, 600
668, 100
671, 100
767, 500
789, 000
889,000
943,000
71,000
63,700
113,900
171, 750
200,200
162, 900
91, 355
457, 650
489, 550
529, 650
524, 550
523, 750
(')
4,000
21,500
28,500
39, 750
32,200
' Comparable statistics not available since beginning on Jan. 1, 1938, cracking capacity is measured in
terms of cracked gasoline production; in previous periods it was the throughput of fresh charging stock.
Source: U. S. Bureau of Mines, annual surveys of petroleum refineries, including cracking plants.
RATIO OF CAPACITY OPERATED — INDEPENDENTS CONTRASTED WITH
MAJORS
In addition to strategic location of refineries and control of the more
efficient types of cracking plants, the majors enjoy whatever advan-
tages that result from large-scale operations and operating at a high
percent of capacity. Table 11 shows the contrast of the refining
» standard Statistics, Inc., Standard Trade and Securities, New York, June 2, 1937, vol. 84, No. 18, sec. 2,
p. 37.
'0 Ibid., February 9, 1940, vol. 95, No. 95, sec. 3, p. 21.
34
CONCENTRATION OF ECONOMIC POWER
activity of the majors and independents. It indicates also that the
independents operate at less than 50 percent capacity and must there-
fore have more interest on their property to pay per barrel of oil
refined.
Table 11. — Refinery operations of the major oil companies and independents, 1926
and 1937
[Units in barrels]
20 major oil companies
Independent oil companies
Year
Crude-oil
capacity '
Runs to
stills
Percent of
capacltj'
Crude-oil
capacity '
Runs to
stills
Percent of
capacity
1937
1, 146, 994
681, 619
977, 016
555, 064
85
81
420, 637
359, 714
206,424
224, 200
49
1926
62
> Maximum daily crude-oil throughput as of Jan. 1, inflated to annual refinery capacity basis.
Source: U. S. Bureau of Mines; compiled from the annual surveys on petroleum refineries for 1937 and
1926; also appendix, table 13, p. 76.
GASOLINE BUYING POOLS — PURPOSE AND EFFECT
The purpose is to stabilize the price of gasoline at the refineries and
prevent what is known as ''distress" gasoline or overproduction from
entering the market. The general practice of the majors was to buy
this gasoline at a price slightly higher than that prevailing on the
market and then put.it in storage or otherwise stabilize the market.
This program of the majors kept this gasoline from getting to the
consumer through independents. The following news item is typical
of the way this buying was done : ^^
Buys bulk gasoline. — Approximately 600 tank cars of gasoline have been pur-
chased by Gulf Refining Co. from independent refiners in north and west Texas.
This purchiase has had a stabilizing effect on the market, serving to halt the
downwaird ti-end of prices in north Texas.
THE PACIFIC COAST CARTEL
This plan was started in 1929 by the major oil companies. Besides^
an agreement to maintain prices, the scheme was to consist of an
arrangement for the collective purchase by the m^ajors of surplus gaso-
line manufactured by the independent refiners if they- would maintain
prices mutually agreed upon.^^ A consent decree was entered on Sep-
tember 15, 1930, whereby the defendants were enjoined from "cooper-
ation" in this manner. ^^ The Department of Justice later acquiesced
in a modification of the "Long pool" consent decree on September 25,
1933. This proposal to reestablish the pool was to be an agreement
under the N. R. A. oil code. The Department took the position that
the cartel approved weilt far beyond the provision of the Oil Code and
proceeded later to get new indictments irrespective of their member-
ship in the pool. The majors did not care to go to court and the
organization was dissolved. The Department of the Interior opposed
the Department of Justice's position in this matter.'* Later the
i> Wall Street Journal, New York, March 1, 1929, p. 11.
" Myron W. Watkin^, op. cit., p. 232.
» United States v. Standard Oil Co., el at, Final Decree, In Equity No. 2542-K, in the U. S. District Court,
for the Northern District of California, Southern Division.
" Department of the Interior, press release, March 29, 1934. It said: "These indictments have had the
effect of once more throwing the oil industry on the Pacific Coast into a state of chaos."
CONCENTRATION OF ECONOMIC POWER 35
Pacific Coast Petroleum Agency was formed, which had some features
of the old cartel, but did not fix uniform prices for its several members,
although this did result in actual practice due to the close cooperation
of the members. Seven majors were members of the agency and the
distinctive feature of it was the buying pool. The enforcement of it
was interesting. In simple terms it meant that members of the cartel
agreed to boycott all service stations not handling gasoline produced
in accordance with the refinery restriction program. This was espe-
cially effective because of the divided dealer stations. Usually a sta-
tion did not handle the brand of a single refiner exclusively.
THE MID-CONTINENT BUYING PROGRAM
This is one of the best known conspiracies of the majors to stabilize
the refinery gasoline market and prevent surplus gasoline from being
sold competitively. During the life of the Oil Code the Administrator
permitted a stabilization program whereby the majors could buy dis-
tress gasoline from independent refiners and control the tank car prices.
After the N. R. A. the majors operating in the Midwest continued this
program, whereby each major would buy a certain percentage of gaso-
line from designated refiners and a statistical committee would report
the location and amount of the surplus gasoline. Mr. C. E. Arnott,
vice president of Socony-Vacuum Oil Co., Inc., was head of the general
stabilization committee. The ultimate aim of the majors was to raise
the price to the jobbers and consumers, and there is no evidence that
the majors tried to get the independents to produce less gasoline.*^
The majors profited as long as they could buy at such low prices and
raise their prices to the consumer.
LESSENING OF COMPETITION THROUGH EXCHANGING OF GASOLINE
It is a common practice of the major oil companies to exchange
gasoline with each other. All majors exchange gasoline, except Sun
Oil Co.^^ This is usually done when a major finds it advantageous to
obtain gasoline on an exchange basis from another company rather
than to make shipments from its own sources. Through these
exchanges transportation costs are saved. The principle is that a
major supplies other majors gasoline for their marketing outlets which
are near his own refinery in turn for gasoline needed at his own mar-
ketmg outlets which are located at distant areas. The amounts ex-
changed usually balance out at the end of the year. It is not exchanged
on a price basis. Supplies so received are usually sold under the brand
name of the receiving companj^. In some cases exchanges of gasoline
may be made under the receiving company's specifications. Sometimes
the gasoline may receive further treatment and blending.
In 1937 over 96 percent of the gasoline received by major oU
companies on an exchange basis was from other majors. In the same
year 36,750,483 barrels of gasoline were received by major oil compa-
nies on an exchange basis,^'' which is 7.3 percent of the 1937 gasoline
consumption.
'* United States v. Soconv-Vacuum Oil Company, Inc. et al, Supreme Court of the United States, May 6,
1940, p. 10 (310 U. S. 150). This opinion, in favor of the Government, sets forth in sufficient detail the facts
relatinc to the concerted buying program.
" Hearings before the Temporary National Economic Committee, Part 14-A, pp. 7808-7811. These
statistics were supplied by the oil companies for 1935, 193b, and 1937, and individual company exchanges were
reported.
" Ibid, p. 7811.
36 CONCENTRATION OF ECONOMIC POWER
SUMMARY AND CONCLUSION
Because of the increasing technical nature of refining in recent years
it has tended to be concentrated in large plants. A definite character-
istic is that the majors control the large plants and account for over
85 percent of the production. The location of these plants combines the
advantages of pipe lines for regular crude oil supplies and economical
access to markets through low cost water transportation. This
eliminates the necessity of shifting with new discoveries of crude oil.
The independent refineries are very small and located in or near the
oil fields. Their mortality has run very high, as is so well illustrated
by the example of the East Texas field. The main reason for this has
. been a lack of crude oil and transportation facilities. There is sufficient
evidence to indicate that the policy of the majors has been to prevent
the independent from getting adequate crude oil supplies through the
refinery price squeeze and by their control over pipe lines.
Furthermore, the majors have purchased up surplus gasoline from
the independents to prevent it from entering the market through
independents and to maintain a stabilized price structure.
Virtually all the patents for refining oil are owned by the majors,
usually through jointly owned companies. Some independents do
obtain licenses for patents after paying considerable royalty.
CHAPTER VI
GASOLINE TRANSPORTATION
THE PURPOSE AND GROWTH OF GASOLINE PIPE LINES
The growth of gasoline pipe Unas has been very rapid during the
past 10 years. There were over 8,000 miles on January 1, 1940, as
compared to 236 miles in 1929.' Many new lines and extensions are
being built today. For the most part they bring gasoline from the
Mid-Continent area to the industrial areas of the Great Lakes and
from the refining centers of the Atlantic seaboard to inland points.
The primary purpose in developing them was to expand' markets and
furnish a very cheap form of transportation. The cost of transport-
ing gasoline in pipe lines is about the same as crude oil — just about
half that of the rail rate. Therefore, as a result of building gasoline
pipe lines, the majors have expanded their markets and are able to
give real price competition to the independents. There is practically
no physical difference in crude oil and gasoline lines, except location
and the fact they are not used interchangeably. However, in rare
instances a gasoline line may be converted into a crude oil line.
Recently a pipe line transporting gasoline from near Casper, Wyo.,
to Kansas City, Kans., was converted into a crude-oil line. The
main expense in converting a crude-oil pipe line into one for gasoline
is the cleaning.
The investment in gasoline pipe lines has increased rapidly since
1929, amounting to over $44,000,000 at the end of 1938. The amount
of income was over $13,000,000 or an average return of 29,7 percent,
just slightly higher than the earnings of crude-oil hnes. The gasoline
transported by major oil companies through their pipe lines increased
from 3,000,000 barrels in 1929 to 89,000,000 barrels in 1938.^
THE 0WNE;RSHIP of GASOLINE PIPE LINES BY MAJOR OIL COMPANIES
As of December 31, 1938, the majors owned 96.1 percent of the
mileage of gasoline lines .^ Only one independent, the Champlin Re-
fining Co., has a gasoline pipe line, which consisted of about 250 miles
ifi 1938. All of the 20 majors have gasoline pipe line facilities, ex-
cept Gulf Oil Corporation and the Ohio Oil Co. Gulf Oil Corpora-
tion uses its tankers to offset this and briftgs considerable gasoline
to the Atlantic coast from its large refinery at Port Arthur, Tex.;
the Ohio Oil Co. markets in a comparatively small area, mostly in
Ohio, and uses the pipe lines of the other majors.
CONTROL OF OTHER TRANSPORTING FACILITIES
The control of tankers has aheady been indicated. Generally
speaking, tankers can be used interchangeably and be shifted from
' Appendix, table 17, p. 85; supplemented by statistics on new lines completed, National Petroleum
News, transportation issue, Cleveland, December 13, 1939.
' Hearings before the Temporary National Economic Committee, Part 14-A, p. 7798.
» Ibid, p. 7729.
37
278623 -41— No. 39 i
38
CONCENTRATION OF ECONOMIC POWER
transporting crude oil to gasoline with a minimum of effort. Ten of
the majors have huge refineries located on or near the Texas Gulf
coast. A very substantial part of this gasoline production is moved
to the Southern States and as far up as Maine by tankers. Adequate
storage facilities have usually been built by the majors at the more
important port cities.
The movement of crude oil and gasoline over the inland waterways
is made by barges. Although separate figures as to the ratio of crude
oil and gasoline transported are not available, it appears that barges
are used mostly for gasoline. At the end of June 1939, 14 major oil
companies owned 72 percent of the gross tonnage of barges owned
by oil companies.*
Tank cars move by far the greatest portion of gasoline to the
marketer, taking into consideration the shorter movement. On Janu-
ary 1, 1939, there was a total of 146,399 tank cars in petroleum
service, only 12,365 of which were owned by the railroads.^ Although
varying with each company, the practice of the majors is to lease
most of their tank cars. The Standard Oil Trust owned its tank car
facilities through Union Tank Car Co. After the break-up of the
trust it began to lease the cars it needed. Most of the tank cars are
owned by four large companies which lease them. The major group
own 43,789 or 30.2 percent of the total.^ It does not appear that
there is any control of tank cars by the majors, since any oil' company
can lease all it needs.
MILEAGE JOINTLY OWNED BY MAJORS
Great Lakes Pipe Line Co. is jointly owned by 8 of the 20 major
oil companies and is one. of the best examples of collective ownership.
The distribution of stock ownership is given in table 12.
Table 12. — Distribution of stock ownership of Great Lakes Pipe Line Co. on Dec.
31, 1938
Name of coftipany
Shares
Percent
Name of company
Shares
Percent
Continental Oil Co ..
40, 035
26,016
H', 508
16. 665
13,015-
29.2
19.0
14.2
12.1
9.5
ConsolidatedOil Corporation.
Cities Service Co
Phillips Petroleum Co....
Total
8,064
7,073
6.847
5 8
Mid-Continent Petroleum
Corporation _
.5.2
5.0
Skelly Oil Co
The Texas Corporation
137, 223
100.0
The Pure Oil Co
Source: Annual report of Great Lakes Pipe Line Co. to the Interstate Commerce Commission, Dec. 31,
1938.
This pipe line is 2,134 miles in length, extending from near Tulsa,
Okla., to St. Paul, Minn,, and Chicago, 111. This mileage represents
over 25 percent of all gasoline lines and is an exceptionally important
factor of these companies' marketing advantage in the Midwest area.
This point will be covered under rnarketing and basing points. The
investment in carrier property of the Great Lakes Pipe Line Co. was
$17,966,709' (or 41 percent of the total gasoline pipe-line investment)
at the end of 1938, and a rate of return of 31 percent ^ which is con-
* Based on the List of Inspected Tank Vessels. June 30, 1939, Department of Commerce, Bureau of Marine*
Inspection and Navigation, and World Petroleum Register, 1940.
« American Petroleum Institute, Petroleum Facts and Figures, New York, 1939, p. 103. Data authority
l3 Union Tank Car Co.
• Compiled from Official Railway Equipment Register, tank car section, New York, January 10, 1940.
' Hearings before the Temporary Nsrtional Economic Committee, Part 14-A, p. 7800.
CONCENTRATION OF ECONOMIC POWER 39
siderably higher than the return on other investments. The weighted
average rate of return for all gasoline pipe lines reporting to the
Interstate Commerce Commission for the same period was 29.7.
RESTRICTIONS AND NONCOMPETITIVE SPECIFICATIONS FOR SHIPPERS
As was the case of crude-oil lines, gasoline lines have been held to
be common carriere under the jurisdiction of the Interstate Com-
merce Commission, but due to monopolistic restrictions they have for
aU intents and purposes prevented outsiders from using the lines.
The companies have not provided adequate common carrier storage
facilities. The minimum tender of 50,000 barrels prevents the typical
small refiner of less than 2,000 barrels of gasoline production per day
to ship under those restrictions. Furthermore, at least one of the
majors. Sun Oil Co., writes a provision in its tariffs filed with the
Interstate Comtnerce Commission that shippers may only ship gaso-
line of certain specifications, which appears to be the same as saying
the gasoline must be the equivalent of "Blue Sonoco." It is not
clear what the reason for this is, but nevertheless it would serve as a
restriction, especially in the case of third grade gasoline. The answers
to the questionnaires submitted by the major cil companies to the
Temporary National Economic Committee showed that all but three
transported gasoline in their own name.*
REBATES
Just as the case of crude oil lines, gasoline pipe lines have been
common carriers in name only and not in fact. Furthermore, much
evidence has been developed to show that major oil companies receive
rebates in the form of stock dividends. The complaint of the Petro-
leum Rail Shippers' Association before the Interstate Commerce
Commission supports this point as follows:^
Because of the facts aforesaid said pipe line companies are not in fact bona fide
common carriers and are dummy corporations organized by certain shippers who
are owners of the stock for the purpose of receiving rebates in the form of stock
dividends and for the purpose of procuring transportation of their products at
a cost materially less than that paid by competitors and users of railroads for
transportation of their products who are required to pay the regular tariff rate
for the same service.
In the case of Great Lakes Pipe Line Co., jointly owned by eight
majors, rebates have been substantial and have seriously impaired
the ability of independents to compete. For example, on shipments
t)f gasoline from Tulsa, Okla., to principal, terminal points at Kansas
City, Kans.; Des Moines, low^a; Omaha, Nebr.; Chicago. 111.; and
Minneapolis, Minn.; the rebates are the differences betworn the pipe
line costs and the corresponding tariff rates, which amount to L4
cents, 1.6 cents, 1.45 cents, 1.3 cents, and 1.75 cents, respectively,
I per gallon.'"
• Files of the Temporary National Economic Committee. Answer to question No. 19 of the Questionnaire
for Oil Companies. May 1939.
I > Petroleum Rail Shippers' Astocialion v. Alton and Southern Railroad, et al. Complaint, No. 28106, filed
! Aug. 29, 1938, p. 18.
" United Statet v. Great Lakes Pipe Line Company, Complaint, Civil No. 183, filed in tbc District Court
. for the District of Delaware, September 30, 1940, pars. 10 and 11. See also United States v. Phillips Pelro-
' leum Company and Phillips Pipe Line Company, Complaint, Civil No. 182, filed in the District Court foi
I the District of Delaware, September 30, 1940.
CHAPTER VII
MARKETING
GEOGRAPHICAL DISTRIBUTIO <
The majors are all engaged in marketing of petroleum products,
and exercise a substantial control over this division in order* to main-
tain the price structure and afford adequate outlets. In an attempt
to eliminate competition the Standard Oil trust divided the United
States into 11 marketing districts, each one being placed under the
control of a marketing subsidiary. The territories did not overlap
and for the most part followed political rather than economic lines.'
For instance, Standard Oil Co. of New York was the distributor for
New York and New England; The Standard Oil Co. of Ohio had all
of Ohio; and Standard Oil Co. (Indiana) had a group of 10 North
Central States. The dissolution decree of 1911 did not affect this
set-up to any large degree.^ The Federal Trade Commission found
in 1915 and 1920 that this marketing arrangement was not changed
very much.^ The Atlantic Refining Co. was an exception. How-
ever, since 1911 other majors have been organized and operate over
much wider areas. For example, Texas operates in all States, Shell
in 47, and Consolidated in 43 States.* The number of major oil
companies operating in the different States ranges from 5 to 16, the
modal number being 11. In terms of volume the leading major in
each State accounts for 23 percent of the domestic sales, ranging
from 11.7 percent in Kansas to 61.5 percent in Utah.*
OWNERSHIP OF MARKETING FACILITIES BY THE MAJORS
There were 197,568 regular service stations in the United States in
1935 according to the Bureau of the Census.® This figure does not
include indirect outlets such as garages and country stores. Eighteen
of the major oil companies owned 75,547 service stations ^ at the end
of 1935. On this basis the major group owns only 38 percent of all
service stations in the United States. On the other hand the same
majors owned 1 9,609 bulk plants ^ at the end of 1935. When compared
to the total figure of 27,333 bulk plants as reported by the Census '
for 1935. it shows that the majors have 73 percent of the total. Figures
' Oeoree W. Stocking, The Oil Industry and the Competitive System, Houghton, MiflBin Co., New
York. 1925, p. 70.
' David Levine, The Petroleum Industry— A Study of Its Interstate Aspects, Work Projects Adminis-
tration Otfipial Project No. 461-97-5-7, mimeographed, New York, 1938.
' Federal Trade Commission. Report on the Price of Gasoline in 1915 — pp. 22 and 24; and Report on the
•Advance in Price of Petroleum Products, pp. 50-54, Washington.
• Appendix, t&ble 19, p. 8S-S9.
• Appendix, table 23, p. 94.
• Census of Business: 1935— Retail Distribution, U. S. Bureau of the C ;nsus, vol. IV, p. 13.
"Appendix, table 21, p. 90.
*.\ppendix, table20. p. 90. A bulk plant is a storage station, consistixig. f one or more tanks and a loading
rack, snd usuallv a warehouse, located within trucking distance of the e' lil outlets
' Census of Business: 1935— Wholesale Distribution, U. S. Bureau o '1 • Census, vol. II, p. v.
41
42 * CONCENTRATION OF ECONOMIC POWER
for Standard Oil Co. of California and Mid-Continent Petroleum
Corporation are not available.
CONTROL OVER JOBBERS
The function of the jobber is to buy gasoline in tank carlots and
supply service station operators. Practically none of the sales of
independent jobbers are made to commercial consumers. The main
control over jobbers has been through the narrowing margins and
pressure to operate is 'i agent or vj::clusive distributor for majors only.
In the main, price f.na marketin^^ policies are dictated by the majors. •
There are approximately 8,000 jobbers in the United States, but
80 percent of these have contracts with the majors. ^° The buying
programs of the majors have prevented independent gasoline from
getting to these jobbers. The Madison Oil case illustrates that."
(1) Elimination of independent jobbers. — From 1928 it was custom-
ary for independent jobbers to sell products under their own brand
names. They bought gasoline in the open market" on specification,
and when the volume sold by independents became too strong the
majors would lower their tank wagon prices. Since they had sufficient
bulk plants in the area, no jobber could keep his price above that set
by the majors. Therefore, the independent jobber had to absorb
these losses or go out of business. He appealed to the independent
refiner who was supplying him to give him guaranteed margin to
protect him in these cases, but the typical independent refiner did not
have sufficient capital to do this. Therefore, the jobber selling inde-
pendent gasoline had to go out of business or sign up as an exclusive
distributor or an agent for a major oil company. Most jobbers followed
the latter course. The extensive advertising program of the majors
and oft'ers of credit had some inducement. After the jobbers signed
contracts with the majors their margins were narrowed by the manipu-
lation of the refinery prices by the majors.
(2) Narrowing margins to jobbers. — Jobber margins have been
decreasing during the past 10 years through what is known as the
"jobber squeeze." In narrowing the jobbers' margin the majors
wanted to force the jobber to bear part of the cost of price cutting,
resulting from intensified competition among retailers operating under
the "Iowa plan." At any rate the margin has dropped to 1 cent and
less per gallon in many areas. Weighted average prices of gasoline
are not available, but compilations for Des Moines, Iowa, from 1930
to 1938, indicating the narrowing margins given by Standard Oil Co.
(Indiana), are set out in table 13. Mr. Sidney A. Swensrud, in his
testimony before the Temporary National Economic Committee,
admitted the narrowing margins to jobbers, but said: "The reason it
has bcen'narrowing is because the costs have been declining, the costs
of performing the jobbing function have been declining."'^ It is
difficult to understand how these costs are lower, since there is less
sales volume for each independent jobber.
«» Testimony of Paul E. Hadlick, secretary, National Oil Marketers' Association, Washington, D. C,
hearings before the Temporary National Economic Committee, Part 15, pp. 8839 and 888S.
" See Opinion of Justice Douglas, United States v. Socony-Vacuum Oil Co., Inc., el al, Supreme Court.
May 6, 1940 (310 U. S. ISO).-
" Hearings before the Temporary National Economic Committee, Part 15, p. 8110.
CONCENTRATION OF ECONOMIC POWER
43
Table 13.
-Price structure of regular grade gasoline ' at Des Moines, Iowa, as posted
by Standard Oil Co. {Indiana), by years, 19S0-S8
Tank car,
Tulsa
(1)
Freight,
Tulsa
to Des
Mcines
(2)
Tank car,
Des
Moines
(l) + (2) =
(3)
Dealer
(4)
Service
station
(5)
State and
Federal
taxes
(6)
Margins for marketing
Year
Jobber
(4) -(3)
Dealer
(5) -(4)
Total
(7)+(8)
1938 . ...
S.23
5.81
5.96
5.37
5.05
4.27
4.93
3.84
6.23
2.33
2.18
2.24
2.22
2.18
2.23
2.24
2.18
2.18
7.56
7.99
8.20
7.69
7.23
6.50
7.17
6.02
8.41
9.21
9.44
10.12
9.43
9.33
9.05
10.12
9.42
12.16
13.22
13.43
13.64
n. 33
13.20
11.96
12.62
11.74
15.16
4.00
4.00
4.00
4.00
4.00
4.27
3.52
3.00
3.00
1.65
1.45
1.92
1.84
2.10
2.55
2.95
3.40
3.75
4.01
3.99
3.52
3.90
3.87
2.91
2.50
2.32
3.00
5.66
1937
5.44
1936
5.44
1935
5.74
1934 . . ..
5.97
1933
5.46
1932
5.45
1931 -
5.72
1930
6.75
' Prices are in cents per gallon and do not include State and Federal taxes. Jobbers buy in tank rarlots
which are based on the group 3, or Tulsa, Okla., refinery prices.
Source: National Petroleum News, Oil Price Handbook, annual, Cleveland: For 1937 and 1938 service
station prices are as reported by the Oil and Gas Journal, Tulsa. Freight rate data was obtained from
Public Tariff Section, Interstate Commerce Commission.
(3) Elimination of bulk plants through oil tank trucks. — During the
past few years most of the majors have followed the practice of using
oil tank trucks to serve their retail outlets. An examination of un-
published statistics of the United States Bureau of Public Roads on
commodity movements in interstate commerce suggests this trend.
This trend has resulted in an enlargement of the radius of operation
from 50 to 100 miles, increased the minimum delivery from 50 to 300
gallons, and increased the capacity of the storage tanks. The com-
panies using these trucks make the need for the jobbing function much
less, thereby eliminating bulk plants and jobbers. These trucks are
able to operate within a large radius from the refinery or seaboard
tenninal. They are considered as private carriers by the Interstate
Commerce Commission, if they do not haul for others. In addition
to the elimination of bulk plants through tank trucks, restrictions in
the way of basing points are being used to the competitive disadvan-
tage of independents.
THE USE OF BASING" POINT SYSTEMS
There are many basing points in the petroleum industry whereby
the freight from a designated base is charged to the destination, regard-
less of the origin or method of transportation. The practice is some-
what analogous to the well-known practice of steel and cement com-
panies. They are used to maintain the price structure of majore and
to realize price advantages from their control of transportation and
strategic refinery locations. It also makes it possible to base prices
on the so-called spot market, which may easily be manipulated or
controlled.
(1) Group 3 or ^^ Tulsa plus" basis. — This is one of the best known
basing points used by the major oil companies. Tulsa is a big crude
oil market, but comparatively little of the refining of the majors is
done in that area. There are some independent refiners who make
quotations to trade journals, which forms a spot market. The
majors' gasoline, either what they produce or what they buy on the
spot market, for the most part moves to the market through gasoline
44 CONCENTRATION OF ECONOMIC POWER
pipe lines. For example, Great Lakes Pipe Line Co. serves eight
majors exclusively and moves gasoline to Kansas, Nebraska, Iowa,
Illinois, Indiana, and Minnesota. Other companies marketing in
this area have the crude oil moved to the market and refined there.
Thus, Shell has a crude oil line extending from the Tulsa area to its
refinery at Wood River, 111., and a gasoline line from there to Ohio;
Standard Oil Co. (Indiana) runs its crude oil from the Tulsa area
to its huge refinery at Whiting, Ind. The price the jobber and dealer
have' to pay is the Tulsa tank car spot price, plus the all-rail freight
rate. These companies have a definite transportation advantage
which the independents must pay. If, for example, an independent
does ship gasoline over the Great Lakes pipe line, the tariff would
be the same as the all-rail rate. The independent jobber cannot
stand this competitive advantage of the majors and has been gradu-
ally going out of business or working for the majors. The all-rail
rate from Tulsa to Chicago is 2.64 cents per gallon; the cost is less
than half of that, wliich gives more than 1 cent competitive advantage
on each gallon. Gasoline moving only a few miles would have the
2.64 cents per gallon added to it as a part of the retail price.
(2) Gulj coast bulk market. — As already discussed, about half the
majors have large refineries on the Gulf coast. How are prices set at
New York Harbor and other seaboard terminals? Strangely enough,
they are based on the quotations of the few small independent refiners
on the Gulf 'coast, which is a very thin market and may easily be
manipulated through the majors' buying policy. This Gulf coast
price, plus transportation charges, is the tank car or jobber price at
New York Harbor and other eastern seaboard cities.'^ Furthermore,
it serves as a base for the prices at refining centers on the east coast
where some crude oil is imported and the rest brought from the Gulf
coast. The majors do not claim that their prices are based on a
refinery cost analysis owing to the difficulty of computing costs,
ETHYL GASOLINE CORPORATION AGREEMENT
The Ethyl Gasoline Corporation manufactures a patented fluid
called tetraethyl lead which is mixed with gasoline to raise its anti-
knock qualities. All majors use this fluid, except Sun Oil Co., which
has a special refining process. This is a very important fluid and not
obtainable by independent jobbers or refiners unless they agree to
certain price policies, the main one being price maintenance as out-
lined by the Ethyl Gasoline Corporation in their licensing agreements.
The corporation had a requirement that all licensees must sell premium
gasoline 2 cents higher than the regular grade. The difference in the
cost of these two grades is only 0.37 cent per gallon. Table 14 gives
the tetraethyl lead content of both premium and regular grades by
companies, indicating an average difference of 1 .48 cubic centimeters.
Therefore, since the cost to the blender is 0.25 cent per cubic centi-
meter ^* the difference in cost is 0.37 cent per gallon. The control
of this fluid has the effect of keeping independent gasoline from the
consumer, except through the majors, since straight-run gasoline is
not generally satisfactory without the fluid. Standard Oil Co.
" Buffalo Courier-Express, January 29, 1930, p. 5. Announcement of Standard Oil Co. of New York's
new price basis policy.
'< As reported in a letter signed by E. W. Webb, president of EthyV Gasoline Corporation, which accom-
Janied the 2 new agreements mailed to Ethyl refiner licensees. National Petroleum News, Cleveland,
une 5, 1940, p. 20.
• CONCENTRATION OF ECONOMIC POWER
45
(New Jersey) owns 50 percent of the Ethyl GasoHne Corporation and
General Motors Corporation owns the other half.^* Indirectly, E. I.
du Pont de Nemours & Co. has an interest, since it owns 23 percent
of General Motors Corporation.
Table 14. — Tetraethyl lead content of regular and premium grades of gasoline sold
by inajor oil companies,^ 1939
Name of company
Cubic centimeters per gallon
Regular
Winter Summer
Premium
Winter Summer
Atlantic Refining Co. (The)..
Cities Service Co
Consolidated Oil Corporation
Continental Oil Co
Gulf Oil Corporation
Ohio Oil Co
Phillips Petroleum Co
Pure Oil Co. (The)
Shell Union Oil Corporation..
Skelly OilCo
Socony-Vacuum Oil'Co., Inc.,
Texas Corporation (The)
Union Oil Co. of California-..
Simple average
1.0
1.1
1.3
3.0
1.5
1.4
.8
1.5
0
1.0
.8
1.0
.4
1.0
1.2
1.3
3.0
1.5
1.4
1.4
1.5
0
1.2
.9
1.0
.5
2.8
2.1
3.0
3.0
3.0
2.8
2.2
3.0
2.2
2.9
3.0
2.0
2.6
2.8
2.5
3.0
3.0
3.0
2.8
2.4
3.0
2.2
2.9
2.5
2.0
2.7
1.14
1.22
' As reported to the Temporary National Economic Committee in response to question 34 (revised) of
the Committee's Questionnaire for Oil Companies. See Hearings, Part 14-A, pp. 7824-7841, for other speci-
flcatons of various brands of gasoline.
The Ethyl Gasoline Corporation has followed the practice of send-
ing agents into the field in order to determine whether or not a license
will be issued and to report on "business ethics" followed by the
particular companies.'^ The corporation has refused to issue licenses
to a number of jobbers who were not abiding by the marketing policies
prevailing in the industry, or who were not maintaining the retail
prices on gasoline posted generally in their area, or whose retail dealers
were not maintaining the prices.^^
PRICE LEAHERSHIP AND DIVISION OF TERRITORY FOR POSTED^ PRICES
The prices of gasoline to service station dealers and jobbers are
posted by the majors who w^ere a part of the Standard Oil Trust and
published in certain trade journals at least once a week. For each
group of States comprising a marketing territory, quite similar to
that set up after the 1911 decree, the designated major is the recog-
nized price leader and posts the prices for that territory. Before the
adoption of the Iowa plan '^ service station prices were also posted.
Since this plan is not in effect in Texas, Arizona, Nevada, California,
Oregon, and Washington, service station prices are posted in these
States.
The Atlan^c Refining Co. was originally assigned Pennsylvania and
Delaware as its marketing territory, but owing to the company's use
'* Poor's Manual of Industrial Investments. New York, 1940, p. 2150.
'» United Slates v. Ethyl Gasoline Corporation, stipulation in equity No. E-84-321, District Court for the
Southern District of New York.
"Idem.
" This plan was started in Iowa in 1935 by^Standard Oil Co. (Indiana) to avoid chain-store taxes.. Instead
Of having salaried employees at their service stations, the company leased the stations to lessees and the
employees were put on a commission basis. As a measure of this, Stanriard Oil Co. (Now Jersey) operated
17.717 service stations in 1933 contrasted to only 417 in 1938.
46
CONCENTRATION OF ECONOMIC POWER
of tankers and the building of a new refinery at Philadelphia about
1920, a decision was made to expand the marketing territory.^® How-
ever, the prices are the same in the few States in which they do post
prices with the leader, excepting Atlantic City, N. J., which was only
one-tenth of a cent lower. Likewise, the prices of the non-Standard
majors which market over a wider area are the same as the posted
prices of the leader.
The effect of this division of territory lessens competition and main-
tains the price structure from the well to the consumer's container.
It also makes more effective the advantages of refining locations and
low-cost transportation advantages which are not available to inde-
pendents.
Table 15 shows the division of marketing territory for the United
States.
CONTROL OVER SERVICE STATION OPERATORS
The general practice of the majors is to lease their service stations to
operators on a gallonage basis. This means that the operator pays
the posted tank wagon price and sells at competitive prices; that is,
his income is the margin between the tank wagon price and his service
station price. Furthermore, the majors put definite marketing
restrictions in the contract and otherwise control his operations.
Table 15. — Price leaders of petroleum products and the States in which they post
prices
Price leader
States
Ronony-Vafinnm Oil Cn., Jnp. , , , ..
Maine, Vermont, New Hampshire, Rhode Is-
The Atlantic Refining Co
land, Connecticut, Massachusetts, and New
York.
Pennsylvania, Delaware, Connecticut, Rhode
Standard Oil Co. of New Jersey '.
Island, New Jersey, Maryland, North Caro-
lina, and Georgia.
New Jer.sev, Marvland, District of Columbia,
The Standard Oil Co. (Ohio) L
Virginia, West Virginia, North Carolina, aud
South Carolina.
Ohio.
Standard Oil Co. (Kentucky)
Kentucky, Mississippi, Alabama, Georgia, and
Standard Oil Co. (Indiana)
Florida.
Illinois, Indiana, Michigan, Wisconsin, Minne-
Humble Oil & Rcrining Co.'
sota, Missouri, Iowa, Kansas, North Dakota,
and South Dakota.
Standard Oil C6. of Nebraska '
Standard Oil Co. of Louisiana '
Arkansas, Louisiana, and Tennessee-
Continental Oil Co
Colorado, Wyoming, Montana, Utah, Idaho,
New Mexico, Oklahoma, Arkansas.
California, Arizona. Nevada, Oregon, and Wash-
Standard Oil Co. of California
ington.
' Subsidiaries of Standard Oil Co. (New .Jersey) .
2 Subsidiary of Standard Oil Co. (Indiana).
Source: National Petroleum News, Oil Price Handbook, Cleveland, 1939.
(1) The use of pilot stations. — Most of the majors operate in a
particular market what is known as a pilot station. These stations
are operated by salaried employees and usually no discounts are
given. A careful check is made of the sales volume which serves as
an index of what the major may expect at stations operated on a
gallonage basis. When it appears that a particular service station
operator is not selling as much gasoline as he should, the sales manager
i» Charles F. Wilner, "J. W. Van Dyke, The Story of a Man and an Industry," National Petroleum News,
Cleveland, February 5, 1936, p. 243.
CONCENTRATION OF ECONOMIC POWER 47
goes to see him and tells him he must increase his sales. Since
virtually all leases made by the majors have a 10-day cancelation
clause in them, the service station operator knows he must do one of
two things — (1) obtain new trade through better sales methods,
longer hours, etc.; or (2) give secret or open discounts from the usual
margin of 8)2 cents per gallon, out of which a 1-cent-per-gallon rental
is usually paid to the company. Numerous service station operators
have made the complaint that they must stand the losses caused by
price wars or subnormal markets, while the majors sell on a rigid tank
car basis. In Washington, D. C., Standard Oil Co. of New Jersey
operates only one of its service stations; the others are leased by
service station operators.
(2) Noncompetitive supplies required to be handled. — The major oil
companies have insisted that their dealers sell all products made by
the particular company if they purchase any of the products, and the
principal product of each company is branded gasoliiie.^^ No written
agreement is used in creating this arrangement, but every "100 per-
cent" dealer knows it. For example, a 100 percent Gulf station will
not be selling "Quakerstate" or other independent brands of motor
oil." Besides being compelled to handle noncompetitive petroleum
products, the operator must handle tires and batteries of a particular
brand. He must also purchase all his supplies and uniforms through
the supplying major."
In addition to the straight covenant not to deal in competitive
products the dealer is bound to exclusive dealing by two other devices
introduced into his purchasing contract; that is, by agreeing to buy
his full requirements or contracting to buy a monthly or yearly mini-
mum which exceeds any reasonable expectancy of volume to be sold
at the station".
Mr. Farish, president of Standard Oil Co. (New Jersey), which
has 25,000 service station outlets, admitted that his company con-
trolled the lessees by the folio whig testimony :^^
The Chairman. I think that is a very frank answer, Mr. Farish, and it goes
to the very heart of the control of retailing. That is exactly the complaint that
the retailers made — that if they exercised their independent judgment to sell
products other than those furnished by the lessor company their leases would
be in danger, and you tell us that is the fact.
Mr. Farish. I think that is the fact, certainly. If you will permit me, I don't
see anything wrong with that, morally wrong with that.
UNIFORM SALES CONTRACTS TO JOBBERS
The practice of major oil companies is to make imiform contracts
with jobbers, as was so clearlj'- brought out during the recent Madison
Oil case.^* The indictment of December 22, 1936, against 14 major
oil companies and 44 company officials, to which most of them entered
pleas of nolo contendere 18 months later and paid fines totaling
several hundred thousand dollars, charged in part as follows:
Commencing in 1931 numerous private meetings have been held by repre-
sentatives of defendant major oil companies at which, among other things, the
'<• Federal Trade Commission, A Survey of the Controversial Marketing Practices in the Petroleum
Products Retail IndiLstry, 10;W, p. 20.
" Hearing before the Temporary N'ational Economic Committee, statement of Arnold W. Craft, Part
'6, pn. 9171-9176. Mr. Cr%§ j«ve 30 actual cases which support this conclusion.
" iDid, testimony of Ilenrv A. Crouthamcl, p. 9209.
" Ibid, testimony of Mr. WUllMn 8. FarfSh, p. 9723.
«* Lnited States v. Soc(my-\'acutim Oil Comptiny, Inc., et al., indictment No. 11364, filed December 22,
1936, in the District Court for the Western District of Wisconsin. See also majority opinion of the Supreme
Court, May 0, 1940 (310 U. 8. 150), which upheld the Government in this case.
48 CONCENTRATION OF ECONOMIC POWER
subject of jobber guaranteed margins in the aforesaid Midwestern area has been
discussed and debated for the purpose and with the effect of arriving at agreements
and understandings whereby the same were arbitrarily fixed and made uniform.
Such meetmgs have been held at frequent intervals in each of the years 1931 to
1936, inclusive, usually at Chicago, 111., at the Blackstone Hotel, * * *.25
In or about December 1934, by agreement made and concerted action taken
pursuant to and in the course of said continuing combination and conspiracy, said
guaranteed margins to be allowed to jobbers in said Midwestern area were uni-
formly fixed at 5K cents below the prevailing normal retail prices, subject to the
reduction therefrom of one-half of the amount by which at any time the differential
bvetween the basic tank car price to the jobber (as uniformly defined in said jobber
supply contracts), and the normal retail price might be less than 5}i cents. In
certain States in which the Standard of Indiana has recently discontinued the
posting of retail prices, such jobber margins have, pursuant to said agreement,
been calculated on the basis of a margin of 2 cents below the dealer tank wagon
prices posted by the Standard of Indiana.^^
In addition to the agreements and concerted action of the major oil
coijipanies, the same indictment charged that they adopted by con-
certed action the following: (1) Uniform duration of 1 year; (2)
uniform provisions for determining the basic price on the quotations of
certain trade journals; (3) uniform provisions to the effect that all
gasoline should be sold only on the basis of all-rail delivered prices,
f. o. b. Tulsa, Okla., irrespective of the actual origin and method of
transportation used; (4) and uniform provisions for fixing minimum
prices, volume to be sold, and prohibitions against protection from
price cuts."
This indictment shows very clearly the element of cooperation
among the majors in dealing with jobbers. The Midwestern area
covered by the practices accounts for a little more than 25 percent
of the gasoline consumption in the United States. The Supreme
Court upheld these convictions on May 6, 1940.^*
EXCLUSIVE CONTRACTS AND PRICE DIFFERENTIALS
The majors use certain tactics to obtain exclusive dealer arrange-
ments. The primary aim of this is to keep independent products off
the market, especially lubricants and automotive equipment. All
the majors follow the policy of charging one-half cent more per gallon
to the divided or split dealers. About 10 years ago it was common to
furnish the 100 percent dealers with pumps at no cost. Later they
began the* practice of renting the station and then subleasing it to the
operator. Under this arrangement the operator had to sell only the
products of the supplying company.
Othtr methods or threats to obtain exclusive contracts have been
(1) building a competitive service station; (2) cutting off the extra
margin and giving the retail outlet's competitors an advantage in
price quotations; (3) cancelation of the credit card privilege; (4)
cancelation of the supply of gasoline; and (5) removal of equipment
installed on the premises. The statistical data and examples of this
problem, presented to the Temporary National Economic Committee
by Mr. Ai-thur W. Ramsdall, indicate' that over 85 percent of the retail
outlets are controlled by the major group ^^ in 1939.
" Ibifi., par. 13.
" Ibid., par. 15.
" Ibid., par. 23.
»9 I'rnVtd States v. Socony- Vucnnm Oil Company, Inc., et al. No. 346 (310 U. S. 150), on writs of certiorari
to the Circuit Court of Appeals for the Seventh Circuit.
" Hearings before the Temporary National Economic Committee, Part 15-A. p. 8735.
CONCENTRATION OF ECONOMIC POWER 49
ELIMINATION OF TRACKSIDE STATIONS
Trackside marketing of gasoline, as the name implies, means that
an operator leases some land along a railroad and a short spur track
is built to sidetrack tank cars of gasoline. A filling station is located
very near the spur track, from which the tank cars can be emptied
directly into the filling station tanks, thus eliminating all the costs of
storage in a central bulk plant, as well as the cost of transportation
by truck from the bulk storage plant to individual filling stations.
The location of these operators is obviously not as good as regular
dealers and they sell gasoline at substantially" lower prices. The
trackside association wanted permission under the N. R. A. code to
sell at lower prices due to their special method of selling and the fact
they could not sell a leaded nationally advertised product.^"
In 1933 there were about 2,000 such outlets in the United States.^'
Considerable complaints have been received from these operators that
pressure from the major oil companies has been made on the railroad
companies to refuse to lease land to these trackside operators. Since
the major oil companies use the railroads to a great extent, the rail-
roads often do refuse new leases. A letter from Mr. J. J. Pelley,
president. Association of American Railroads, written to 13 major oil
companies on Januarj'- 17, 1935, shows very clearly the association's
position in this matter. The letter reads in part as follows: ^^
Railroads in Southeastern territory will reform as rapidly as seems advisable
existing leases covering railroad property used for filling, station purposes. They
will discourage future leases of this character, and will in no case make such
leases on terms more favorable to lessees under the reformation plan. .
THE EFFECT OF NATION-WIDE CREDIT CARDS
The majors issue credit cards for their "100 percent" dealers and
assume the risk involved in late or nonpayment of purchases made.
Usually in States where a particular major does not market, a recip-
rocal agreement is made with some other major. This makes it
possible for a person holding a credit card to buy petroleum products
and accessories on credit anywhere in the United States, even though
the company issuing the card may operate in a limited area. Two
examples may be given. Standard Oil Co. (New Jersey) and Phillips
Petroleum Co. each have reciprocal agreements with five other majors
covering the United States. ^^ This credit card policy is an induce-
ment for a split dealer to become exclusive or 100 percent, since
these credit cards bring a sizable amount of business to him at no
credit risk, in addition to obtaining one-half cent higher margin.
This concerted action of the majors in the use of credit cards makes
it more difficult for the independent jobber or refiner to compete,
since he usually sells in a very limited area and does not have reciprocal
dealings with other companies for credit. Therefore, the motorists
who prefer credit usually buy gasoline from the "100 percent" major
stations, especially so on long trips.
'0 Protest on behalf of the National Association of Trackside Filling Stations, Inc., agains^i'the schedule
of the planning and coordination committee suggesting prices for petroleum products, as set forth in the
administrative order of October 16, 1933.
" Idem.
" Hearinps before the Temporary National Economic Committee, Part 16, p. 9071.
" The 1940 road maps of Standard Oil Co. of New Jersey and the other marketing subsidiaries of Standard
Oil Co (New Jersey) indicate the name of the company in each and every State which will honor the
companies' credit cards.
50 CONCENTRATION OF ECONOMIC POWER
SUMMARY AND CONCLUSIONS
The marketing division is overbuilt and the most competitive of
all divisions of the petroleum industry. In general, marketing is
operated at a loss by the majors, but it does afford a necessary outlet
for their products which they must control in order to insure profits
in other branches of the industry. The majors account for 85 percent
of the domestic sales of gasoline.
The majors that were a part of the Standard Oil Trust are the
market leaders and have the United States divided into 11 marketing
territories. These prices are posted and published generally in the
trade journals and there is virtually no price competition among the
majors.
The majors have taken steps to eliminate independent jobbers
through narrowing margins and pressure on them to operate as agents
only. Their buying programs for independent gasoline and their use
of a price formula based on the all-rail rate, regardless of the type of
transportation, have been very effective in eliminating the jobbers.
Although most of the majors have adopted the "Iowa plan" for
their marketing outlets they have continued to control these stations
in substantially the same way as before. This has been accomplished
largely through short term cancelation clauses in leases and price
concessions. The majors have acted as a group in exercising these
controls over service station operators, who must now operate on a
commission or gallonage basis and buy their petroleum products from
the majors on a rigid tank car market. When independent com-
petition does exist the lessee must meet this and absorb the losses or
risk having his lease canceled. The gasoline price war which started
in Washington, D. C, in 1939 and still continues, is a notable example
of the way the service station operators must operate on a very slim
margin.
SUMMARY AND CONCLUSIONS
The American petroleum industry had its origin in 1859, but its
most intensive growth has accompanied the growth of the auto-
motive industry. The total invested capital is $15,000,000,000 —
a growth of $9,000,000,000 since 1920. Before the 1911 decree the
industry was dominated and controlled by the Standard Oil Trust.
Today the petroleum industry is controlled by 20 major oil companies
which have developed from some of the Standard Oil units as well as
non-Standard competitors, all of them being fully integrated and
acting as a group monopoly on identical policies. Certain factors
tend to establish a policy of cooperation and concerted action among
the major oil companies to control the industry. The American
Petroleum Institute plays a very important part in bringing these
policies together. In all divisions of the industry there are many
jointly owned companies, especially so in the ownership of pipe lines
and patents.
The major oil companies have 60 percent of the invested capital but
control a much higher share of the operations and facilities of the
industry. They have only about 24 percent of the oil wells, but these
are by far the most productive, since they account for 52 percent of the
crude oil production. The majors refine 85 percent of the crude oil
and the deficiency of their own oil supply is made up by purchasing
from independent operators who sell in a buj'^ers' market, because of
the major's control over the available pipe lines. The majors own or
have under lease over 70 percent of all the proven oil reserves in the
Uniticd States and follow a policy of developing them rather slowly,
because of their ability to buy crude oil at the wells at their own
uniform posted price and transport it to their refineries on a low cost
basis.
The majors have been able to build their refineries at the most
strategic locations, and for the most part they are very large plants
capable of turning out many products at a low unit cost. They have
an almost complete monopoly of the patents. The independents are
handicapped by the lack of them and by the large royalties they must
pay when they do use them. The independent refiners are forced to
locate in or near the oil fields owing to a lack of transportation facili-
ties. The majors purchase much of the independent's gasoline so that
it will not reach independent distributors.
The majors have their strongest control m pipe lines and tankers,
and in the case of pipe lines the control is very similar to that held by
the Standard Oil Trust. There are no independent companies en-
gaged solely in the transportation of oil by pipe line, except 8 com-
panies which were units of the Standard Oil Trust. The majors own
89 percent of the crude oil trunk pipe lines, 97 percent of the gasoline
pipe lines, and 87 percent of the oil tankers. Although pipe lines
have been declared common carriers by statute, they have not been
51
52 CONCENTRATION OF ECONOMIC POWER
SO in fact, because of shipping restrictions and other controls. The
operating cost of the controlled pipe line companies, compared with
tariff rates charged, usually gives the major shipper-owner an advan-
tage of 1 to 2 cents per gallon through the payment of dividends to
such owners.
The majors have adopted the "Iowa plan" in marketing, whereby
the stations are leased to independent operators who must buy at a
rigid tank wagon price and sell in a competitive retail market on a
gallonage basis. Very definite, controls are maintained over these
operators, so that the effect is the same as before the adoption of
the plan, but social security taxes are shifted, and the effect of re-
tail price wars does not bring about reductions in tank wagon prices.
The domestic sales of gasoline by the majors is more than 80 percent
of the United States total.
Therefore the independent company operating in only one division
of the industry faces disadvantages of definite controls in other divi-
sions. If he is in the marketing division, he must pay the all rail rate
of some basing point formula which is nearly always twice as much as
the pipe line cost; if he is in the refining business he must pay huge
royalties on patents and must suffer from a lack of strategic refinery
location due to a restriction of transportation facilities; the independ-
ent crude oil producer must sell in a buyer's market to major oil com-
panies who own and control the pipe lines in the particular field.
After reading this report, one may ask how does the independent
exist in view of all the controls exercised by the majors. An exami-
nation of this can be made for each of the divisions of the industry.
In the producing division the independent is often the person who
happens to own prospective oil lands which were obtained before
probable oil production on it was a consideration. To that extent
luck played an important part in these small fortunes of the independ-
ents. On the other hand, "wildcatters" gamble on their skill in dis-
covering oil. Most of them end up in bankruptcy, but a small per-
centage of them do make fortunes. The independent refiners exist
mainly by being able to obtain supplies of crude oil from flush fields.
In the East Texas field the independent refiners were fairly successful
until proration laws were passed. During the peak of their prosperity
there were 74 independent refiners located in this field, but today all
have closed down in the field, except 2 or 3 refineries. It is under-
stood that the flush fields of Illinois are now affording an opportunity
for the independent refiners to operate profitably. Illinois does not
regulate crude oil production on the basis of market demand. The
profitableness of the truly independent jobber depends mainly on his
ability to do business with the independent refiner. The service sta-
tion operators exist mainly by working longer hours and paying lower
wages than the majors now pay at the few company-operated stations,
and did pay before they adopted the Iowa pilan. Generally speaking,
it qan be said that many independent producers and refiners sell their
crude oil and gasoline to the majors and mak« enough to continue' in
business.
In many respects the characteristics of the petroleum industry
resemble those of a public utility, and because of the public interest
involved in the problems of the consumer and national defense, it is
conceivable that the continuance of present practices and conditions
may lead to regulation of the industry by the State and Federal
Governments on public utility principles.
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DO
278523— 41— No. 39 5
54 CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER 55
TRADE J0XJBNAL8
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APPENDIX
The tables and charts contained in this appendix have been repro-
duced entirely from the records of the hearings before the Temporary
National Economic Committee on the Petroleum Industry, September
25 to October 25, 1939.
Table 1. — Comparison of gasoline consumption, domestic crude oil production,
and motor vehicle registrations, by years, 1900-38
"b'ear
Gasoline
consump-
tion '■
Motor vehi-
cle regis-
tration
Domestic
production
of crude
oil'
Year
Gasoline
toQSump-
tjon '
Auto regis-
trations
Domestic
production
of crude
oil 1
1938
1937
1936 .
521, 657
518, 760
481, 606
434, 810
410, 339
380, 494
377, 791
407, 843
397, 609
382, 878
338, 881
305, 367
268.128
232. 745
29, 458, 680
29, 705, 200
28, 165, 650
26, 2.30, 834
24, 951, 662
25,843,591
24, 1 15,129
25, 832, 884
26, 545, 281
26, 601, 443
24. -i&S, 124
23, 133. 243
22.001,393
19, 937, 274
17, 595, 373
15, 092, 177
12. 238. 375
10, 463, 295
9,231,941
7, 565, 446
1,213,000
1, 279, 000
1. 098, 616
996, 596
908, 065
905, 666
785,159
851,081
898,0!!
1,007,323
901. 471
901, 129
770, 874
703, 743
713,940
732, 407
667.531
472, 183
442, 929
378, 367
1918
1917
1916
79, 949
(2)
6, 146, 617
4. 983. 000
3, 513, 000
2, 446, 000
1,711,000
1, 268, 000
944,000
&W,000
469,000
312.000
198. 000
142,000
107,000
78,000
65.000
32,920
23,000
14,000
8,000
335, 928
336, 316
300, 767
1935..
1915
281, 104
1934...
1914 . .
265, 763
1933.
1913
248,446
1932
1912
222, 935
1931
1911
220, 449
193'J
1910.
209, 657
1929
1909
183, 171
1928
1908
178, 527
1927
1907
166, 095
1926.
1996
126, 494
1925
1905..
134, 717
1924 1 196,586
1904
117,081
1923 1 175.088
1903 .-
100, 461
1922
137, 770
116,840
108, 948
88, 648
1902
88, 767
1921
1901
69, 389
1920
1919
1900
63, 621
' Unit is thousands of barrels.
' Authoritative figures prior to 1913 arc not available.
Source: American Petroleum Institute, Bureau of Public Roads, Department of Agriculture.
Table 2. — Trend of gross investment in properties, plant and equipment of the
American Petroleum Industry,^ by years, 1921-38
Year
Million
dollars
6.550
7,877
8.000
9,151
9.500
10. 000
10,500
11.000
11.500
Year
Million
dollars
1921
1930...
1931 -..
12,000
1922... _
12, 100
1923
1924...:
1932...
19.33
12, 200
12,300
1925
1934 -
12,700
1926
1935
13,276
1927
1936
13, 775
1928
1937
14, 525
1929 . .
1938
14, 750
I Petroleum Facts and Figures (1937). p. 170 for figures 1921-1936, ,ir J Fred Van Govern, Director of
Department of .Statistics of Petroleum Institute for figures 1937, 19:J8.
57
58
CONCENTRATION OF ECONOMIC POWER
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CONCENTRATION OF ECONOMIC POWER
59
CHART II
COMPARISON OF THE TOTAL ASSETS OF TWENTY MAJOR OILCX)MPANIHS
FOR THE YEARS 1924 AND 1938
uiuioirt nrooLLAKs
STANDARD OIL COMPANY
(NEW JERSEY)
SOCONY-VACUUM OIL
COMPANY, INC.
STANDARD OIL COMPANY
(INDIANA!
TEXAS CORPORATION
STANDARD OILCOMPANY
OF CALIFORNIA
GULF OIL CORPORATION
SHELL UNION OIL
CORPORATION
CONSOLIDATED OIL
CORPORATION
EMPIRE GAS AND FUEL
COMPANY
PnlLLIPS PETROLEUM
COMPANY
TIDE WATER ASSOCIATED
OIL COMPANY
ATLANTIC REFINING
COMPANY
PURE OILCOMPANY
UNION OIL COMPMfY
OF CALIFORNIA
SUN OIL COMPANY
OHIO OIL COMPANY
CONTINENTAL OIL
COMPANY
STANDARD OILCOMPANY
(OHIO)
MID-CONTINENT
PCTROLEUM CORPORATION
SXELLY OILCOMPANY
lOUKt: ANNUAL NCraOK TO rroautOLSCn AND UOOOn INDUintlAU
gQ. CONCENTRATION OF ECONOMIC POWER
Table 3. — Total assets of 20 major oil companies, 1924~S8
[In millions of dollars]
Kame of company
1924
1925
1926
1927
1928
1929
1930
1931
1. Standard Oil Co. (New
$1, 244. 9
406.2
361.5
288.3
352.8
252.0
257.0
346.2
301.4
78.7
211.4
131.0
181. 6
184.2
51.5
97.7
93.9
42.9
79.7
39.9
$1, 369. 2
533.0
406.1
298.6
373.7
279.0
267.2
251.9
287.9
96.3
. 236.3
134.0
182.0
182.0
55.1
99.9
92.8
45.1
77.8
39.9
$1,541.9
691.2
446.5
328.8
573.8
322. 5
289.7
364.8
, 298.3
121.1
242.7
140.3
178.3
194.8
58.7
107.7
102.6
45.5
84.1
46.1
$1, 426. 6
678.1
462.6
324.8
579.3
347.2
348.1
367.9
265.3
143.5
248.9
138.9
186.3
190.0
65.7
104.5
116.4
42.3
84.2
53.5
$1, 572. 3
695.4
498.4
461.8
590.0
381.7
356.9
402.0
282.8
129.3
249.4
15.5. 7
188.8
195.0
74.5
1012
104.9
45.8
81.5
58.1
$1, 767. 4
708.4
697.0
609.9
604.7
430.8
486.5
400.6
327.1
145.4
251.4
166.2
195.6
211.2
85.3
110.7
198.0
48.7
85.9
62.8
7, 593. 6
$1,771.0
720.3
810.2
581.9
610.3
488.7
471.9
404.9
403.3
214.4
248.3
159.1
215.4
222.7
94.1
215.1
178.0
54.9
81.9
69.1
$1,919.0
2. Socony-Vacuum Oil Co.,
1,038.6
3. Standard Oil Co. (Indi-
afia") -
762.7
4. The Texas Corporation..
5. Standard Oil Co. of Cali-
543.3
690.7
6. Oulf Oil Corporation
7. Shell Union Oil Corpor-
ation
8. Consolidated Oil Corpor-
ation
9. Empire Oas & Fuel Co..
10. Phillips Petroleum Co...
11. Tide Water Associated
Oil Co
452.7
427.0
376.4
403.5
201.4
228.8
12. The Atlantic Refining
Co
13. The Pure Oil Co •-
159.4
216.6
14. Union OU Co. of Ca^i-
fomia...
15. Sun Oil Co
202.2
95.4
16. The Ohio Oil Co .- .
176.8
17. Continental Oil Co
18. Standard Oil Co. (Ohio).
19. Mid -Continent Petro-
leum Corporation
20. Skelly OilCo..._
151.8
64.4
74.9
50.1
Total
5, 002. 5
5, 407. 8
6, 179. 1
6, 174. 1
6, 628. 4
8, 006. 6
8, 135. 7
Name of company
1932
1933
1934
1935
1936
1937
1938
1. Standard Oil Co. (New Jersey)
$1,888.0
$1,912.2
$1,941.7
$1, 894. 9
$1,841.8
$2, 060. 8
$2,044.6
2. Socony-Vacuum Oil«rO.. Inc
1, 000. 5
983.3
783.8
784.9
801.7
900.4
919.1
3. Standard Oil Co. (Indiana)
693.2
676.8
660.7
693.5
710.4
735.1
724.7
4. The Texas Corporation
5. Standard Oil Co. of California
513.8
484.5
474.8
473.8
540.1
614.8
605.4
578.0
567.8
565.4
575.8
582.4
592.3
601.1
6. Qulf Oil Corporation
435.9
427.8
422.0
430.2
442.0
560.4
546.9
7. Shell Union Oil Corporation
393. 0
375.0
347.9
357.6
370.6
377.3
397.5
8. Consolidated Oil Corporation
9. Empire Gas & Fuel Co
368.0
358.3
331.3
328.2
339.2
348.6
357.1
405.2
400.5
393.8
398.9
410.8
427.5
337.1
10. Phillips Petroleum Co
178.4
170.9
169.5
174.5
187.5
212. 5
226.7
11. Tide Water Associated Oil Co
192.0
188.1
179.4
182.8
190.8
203.8
202.8
12. The Atlantic Refining Co
156.6
160.1
164.2
163.0
166.0
186.2
199.1
13. The Pure Oil Co
144.6
197.7
143.4
189.6
144.6
150.7
157.2
151.7
162.8
153.2
178.4
165.5
180.4
14. Union Oil Co. of California
166.0
15. Sun Oil Co
96.7
177.3
87.5
60.4
101.1
171.5
90.3
58.8
103.0
169.2
85.9
55.1
107.1
139.7
91.7
56.9
117.4
138.5
96.6
61.0
128.4
138.9
104.4
63.8
139.1
16. The Ohio Oil Co
138.7
17. Continental Oil Co .. .
125. 1
18. Standard Oil Co. (Ohio)
70.5
19. Mid-Continent Petroleum Cor-
poration
73.2
45.2
71.4
43.0
58.7
43.3
60.6
46.1
63.0
51.2
65.4
56.5
63.7
20. SkeUy Oil Co
62.0
Total
7,685.0
7, 574. 2
7, 245. 1
7,269.2
7, 427. 2
8, 120. 9
8, 107. 5
Source; Annual reports to stockholders and Moody's Industrials.
CHART III
COMMON STOCK HELD BY THE 100 LARGEST STOCKHOLDERS
OF THE MAJOR OIL COMPANIES. DECEMBER 31, 1938
NAME OF COMPANY ^°l*l:„i!ii'l!!,S^''
OF COMMON
STOCKHOLDERS
SHELL UNION OIL CORP 17,393
SUN OIL CO 5,226
SKELLY OIL CO.; - 3,152
STANDARD OIL CO. (OHIO) 3,532
TIDE WATER ASSOCIATION OIL CO 24,116
GULF OIL CO. OF PA 15,135
STANDARD OIL CO. (N.jj 126,383
OHIO OIL CO 31,287
SOCONY VACUUM OIL CORP I 13,240
CONTINENTAL OIL CO 29,969
CONSOLIDATED OIL CORP .- 89,068
STANDARD OIL CO. (INDIANA) 99,665
PURE OIL CO ;.____ 29.033
PHILLIPS PETROLEUM C0.__^__ 40.105
•UNION OIL CO. OF CALIF. 26,524
THE TEXAS CORPORATION 86,380
ATLANTIC REFINING CO 29,313
CITIES SERVICE CO __466.658
25
PERCENT
50
75
100.
1 1 - 1 1 1
1 1 ■! I
1 ■T" -I 1 1 1 I ?-■■■!
a.i..,.«
PET.OCEU- COMP.N, ,OUT0H,
1 1
1
1 I
1
»,ss,o»
CO.PO».T,0»
1 I
1
.J., P.PC u»E co.P. . 1
""Vol'-V"" 1
ASSIGN COS-. 1 ^.Z'^Tt
1
1
1 1
nOCKEtELLER |ST«I.O«KO j H«IW- 1
1
1
1
1
1
ROCKEFELLER INTERCSTsI
1
1
-y^^P
~3
<*
1
1
1
1
* STEWART FAMILY OWNS LARGE PORTION OF STOCK
SOUftCE- TEMPORARY NATIONAL ECONOMIC COMMITTEE QUESTIONAtRE FOR OIL COMPANIES
27S523— 41 — No. 30 (Face p. BO)
61
9.
10.
11.
12.
13.
14.
16.
16.
17.
18.
19.
CONCE]>rrRATION OF ECX)NOMIC POWER
61
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62
CONCENTRATION OF ECONOMIC POWER
Table 5. — Shares of common stock held by the 100 largest stockholders of the major
oil companies,^ Dec. 31, 1938
Name of company
Total num-
ber of com-
mon stock-
holders
Total, com-
mon shares
outstand-
ing
Shares held
by 100 largest
stock-
holders
Percent-
Shell Union Oil Corporation...
Sun Oil Co - ■
Skelly Oil Co
Standard Oil Co. (Ohio)
Tide Water Associated Oil Co .-.
Gulf Oil Corporation of Pennsylvania
Standard Oil Co. (New Jersey)
Ohio Oil Co- -
Socony- Vacuum Oil Co
Continental Oil Co
Consolidated Oil Corporation
Standard Oil Co. (Indiana)
Pure Oil Co —
Phillips Petroleum Co
Union Oil Co. of California
Texas Corporation
Atlantic Refining Co
Cities Service Co ---
17, 393
5,226
3,152
3,532
24,116
15, 135
126, 383
31, 287
113, 240
29,969
89, 068
99, 665
29, 033
40, 105
26,524
86, 380
29,313
466, 658
13,070,625
2, 316, 484
995, 349
753, 740
6, 375, 253
13, 751, 846
26,618,065
6, 563, 377
31,206,071
4, 738, 693
13,751,846
15,272,020
3,982,031
4, 449, 052
4, 666, 270
10, 876, 882
2, 663, 999
3, 704, 067
11, 624, 611
1, 966, 808
817, 245
521, 166
4, 066, 873
7, 430, 934
12, 582, 063
2,955,244
12, 803, 585
1,688,030
4, 801, 289
5, 267, 862
1,359,856
1,355,054
(2)
2, 605, 090
633, 271
776. 599
84.9
82.1
69.1
63.7
54.0
47.3
45.0
41.0
35.6
34.9
34.5
34.1
30.4
'28. 1
24.0
23.8
21.0
• Source; Temporary National Economic Committee questionnaire.
Mid-Continf-nt Petroleum Corporation did not answer.
2 Figure not available, as company reported percentage only.
Standard Oil Co. of California and
CONCENTRATION OF BCONOMIC POWER
63
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64
CONCENTRATION OF ECONOMIC POWER
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t~> <si •**
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CONCENTRATION OF ECONOMIC POWER
65
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CONCENTRATION OF ECONOMIC POWER
67
Table 7. — Domestic production of crude petroleum and producing oil wells '
W major oil' companies and all companies
Domestic production of crude
petroleum (in thousands of
42-gallon barrels)
Producing oil wells
Year
All com-
panies
20 major oil
companies
All com-
panies
20 major oil
companies
Number
Percent
of total
Number
Percent
of total
1§26
770.874
851, 081
996,596
1,099,687
1, 279, 160
357, 137
434, 980
542, 786
585,618
671,992
46.3
51.1
64.5
53.3
52.5
318, 600
315,850
340,990
349, 450
363,030
(')
68,662
77,275
81,716
86, 125
1931
21.7
1935
22.7
1936
23.4
1937
23.7
' Source: U. 8. Bureau of Mines.
' Not available.
68
CONCENTRATION OF ECONOMIC POWER
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69
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71
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CONCENTRATION OF ECONOMIC P6WER
73
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74
CONCENTRATION OF ECONOMIC POWER
Table 11. — Crude oil runs to stills in domestic refineries by major oil companies,
by years, 1929-38
[Thousands of 42-ga!lon barrels]
Name of company
1938
1937
1935
1933
1931
1930
United States,
total
1, 165, 015
1, 183, 440
1, 068, 570
965, 790
819, 997
894, 608
987, 708
19. companies,
total
933, 185
960, 513
883, 523
796, 122
738, 116
709, 738
731, 055
2686,860
Atlantic Refining Co.
(The). -
Cities Ser vice Co..
Consolidated Oil Cor-
poration .-
Continenta 1 Oil Co
Gulf Oil Corporation of
Pennsylvania
Ohio Oil Co. (The)
Phillips Petroleum Co.
Pure Oil Co. (The)
Shell Union Oil Coi-po-
ration ...
Skelly OilCo
Socony-Vacuum Oil
Co -..-.-
Standard Oil Co. of
California '
Standard Oil Co. (In-
diana)
Standard Oil Co. (New
Jcrst^v)
standard Oil Co.
(Ohio)
Sun Oil Co
Texas Corporation
(The)
Tide Water Associated
011Co_...
Union Oil Co. of Cali-
fornia
34,521
33,417
64,616
13, 805
76, 086
5,772
15, 812
25, 040
82, 835
•7.374
' 96,115
49, 532
86, 992
135, 756
15, 739
25, 780
94, 715
44, 107
25. 171
35, 2"6
33, 276
65, 040
14, 426
77, 894
6,116
15, 709
28, 621
84, 451
7,180
100, 635
53, 772
144, 044
14, 673
25, 861
96, 303
43, 965
26, 281
,788
,769
91,
49,
74,
129,
14,
24,
87,
42,
25,
,628
,290
,616
,512
,123
,119
072
992
118
26,221
14,686
35, 729
,(«)
67, 978
2,366
2,888
17, 726
75, 476
4,620
75, 473
(')
68,428
146, 655
9,823
12,890
57,323
48,854
31,725
' Moody's Manuals of Investments.
' 17 companies.
» Not available.
Sources: Temporary National Economic Committee Questionnaire for Oil Companies. The Mid-
Continent Petroleum Corporation and the Standard Oil Co. of Californp did not answer the questionnaire.
CONCENTRATION OF ECONOMIC POWER
75
Table 12. — Gasoline manufactured by major oil companies {including natural
gasoline used in blending), by years, 1929-38
(In 42-gallon barrels)
Name of company
Total
Atlantic Refining Co
Cities Servioe Co.....
Consolidateil Oil Corporation
Continental Oil Co
Oulf Oil Corporation of Pennsylvania
Ohio Oil Co -
Phillips Petriileum Co
Pure Oil Co
Shell Union Gil Corporation
Skelly Oil Co
Socony- Vacuum Oil Co
Standard Oil ("o. (Indiana)
Standard Oil Co. (New Jersey) _
Standard Oil Co. (Ohio)...
Sun Oil Co -.
Texas Corpora ;ion
Tide Water Associated Oil Co
Union Oil Co. of California
1938
421,711,479
17,004,677
16, 550, 810
33,411,000
9,641,996
32, 832, 239
3, 324, 804
14, 483, 231
13,231,093
40, 418, 160
4, 547, 060
39, 975. 410
47, 696, 087
51,077,466
8, 618, 490
12, 192, 760
50, 399, 439
19,371,111
6, 935, 646
419,229,110
16, 703, 101
17,455, n
33, 058, K)
9. 601, .08
32, 514, 545
3, 498, 887
14, 150, 672
1.5, 991, 467
39, 174, 181
4, 402, 059
41, 519. 376
47, 580, 595
46, 144, 746
8, 264, 112
11, 769, 430
50, 582, 880
19, 927, 330
6, 891, 360
1936
377, 886, 726
15, 401, 991
16, 161, 893
28, 267, 000
8, 925, 385
28, 599, 676
3, 464, 793
12, 300, 239
14, 298, 991
37, 552, 442
4.110.529
38, 580, 292
39, 062, 140
41,060,271
7,371,519
10, 927, 381
45, 969, 560
18. 891, 008
6, 941, 616
1935
350, 932, 161
14, 776, 082
15, 753, 142
26,381.000
8, 836, 260
25, 558, 108
3, 177, 194
11,775,105
13,791.335
33, 377, 006
3,882,638
34, 067, 333
35, 855, 570
41,655,764
6, 86.5, 396
10, 407, 820
40, 708, 296
17, 348, 726
6, 715, 376
1934
313, 641, 335
13, 772, 783
13, 570, 055
22, 298, OOO
8, 962, 982
22. 934, 298
2, 892, 665
10, 836, 614
10, 910, 555
28, 945, 246
3, 488, 970
31, 701, 256
30, 678, 035
37, 977, 703
6, 476, 235
9, 868, 445
36, 743, 213
15, 904, 518
5, 679, 762
Name of company
Total
Atlantic Refining Co
Cities Service Co_
Consolidated Oi,' Corporation
Continental Oil Co
Oulf Oil Corporation of Pennsylvania
Ohio Oil Co -
Phillips Petroleum Co
Pure Oil Co -.
Shell Union Oil Corporation
Skelly Oil Co
Socony-Vacuum Oii Co
Standard Oil Co. (Indiana).
Standard Oil Co. (New Jersey)
Standard Oil Co. (Ohio)
Sun Oil Co
Texas Coyporation
Tide Wa er .Associated Oil Co
Union Otil Co. of California..
19.33
307, 715, 718
13,342,650
13,128,205
22, 406, 000
8, 110, 167
21,507,431
2. 603, 721
10, 200, 624
11,363,544
26, 935. 643
3, 255, 023
30, 658, 418
27,816,295
44, 285, 420
6, 447, 364
8, 708, 692
34, 463, 722
15,645,771
6, 837, 028
1932
306, 273, 455
13, 066, 546
12, 993, 607
19, 188, 000
7, 289, 485
22, 309, 657
2, 443, 263
9, 154, 479
11.837,521
29, 423, 043
2, 918, 006
29, 851, 390
27, 577, 237
48, 017, 483
6, 860, 122
8, 078, 661
32, 563, 181
14,941,120
7. 760. 654
1931
329, 209, 624
13, 843, 103
14, 672, 051
20, 038, 000
9, 109, 608
20, 266, 472
■3,131,413
8, 213, 879
11, 549. 814
29,721,212
3, 361, 689
32, 261, 256
32, 665, 430
51, 673. 127
7. 433, 348
7, 655, 802
33, 546, 755
16, 101, 697
7,964,968
1930
320, 927, 700
11,107,427
9, 435, 631
20, 962, 000
6, 793, 657
25, 245, 761
1,751,371
3, 495, 176
9, 198, 802
39, 643, 303
3. 208, 938
30, 361. 351
34, 193, 978
56,081,043
5, 737, 355
6, 376, 2,54
31, 262, 224
15, 986, 063
10, 087, 366
1929
318, 366, 448-
11, 712, 224
5, 795. 326
20, 140, 000
1 7. 502, 791
23, 808, 033
1, 456, 316
1, 348, 515
8, 562, 802
39, 795, 718
2, 940, 899
30, 943, 948
37, 529, 499
56, 701, 892
5, 205, 502
5, 212, 528
31, 500, 258
17, 713, 708
10, 496, 489
1 Estimated figure.
Source: Temporary National Economic Committee Questionnaire for Oil Companies. The Standard
Oil Co. of California and the Mid-Continent Petroleum Corporation did not answer the committee's ques-
ionnaire.
76 CONCENTRATION OF ECONOMIC POWER
CHART X
REFINERY ACTIVITY*
20 MAJOR OIL COMPANIES AND ALL OTHER COMPANIES
BY YEARS, 1926, 1931, 1935-1937
g^ 20 MAJOR COMf-. NIES ,
■1 ALL OTHER COMP/ .4IES
m
1926
Table 13. — Refinery operations of 20 major oil companies and all other companies,
by years, 1926, 1981, 1935-37 i
20 major oil companies
All other oil companies
Year
Crude oil
capacity *
Crude oil
runs to
stills
Percent of
capacity '
Crude oil
capacity '
Crude oil
runs to
stills
Percent of
capacity '
1935.."" .-CIi;!^;!^!"^ "\\\
1931 ^
1926 . ...
1, 146, 994
1, 088, 065
1, 081, 751
1, 090, 656
681, 619
977, 016
882, 747
794, 368
727, 914
555, 064
85
81
73
67
81
420, 637
414, 657
399, 602
348, 424
359, 714
206,424
185, 823
171,422
166, 694
224, 200
49
45
43
48
62
1 Source: U. S. Bureau of Mines.
2 Maximum daily crude oil throughput as of Jan. 1> inflated to aimual refinery capacity basis: includes
> some shut-down plants.
' The percent crude oil runs to stills .,.' crude oil capacity.
1
CONCENTRATION OF ECONOMIC POWER
CHART XI
77
SEASONAL TRENDS OF SELECTED PHASES OF THE PETROLEUM INDUSTRY
UNITED STATES
BASED ON THE 10-YEAR AVERAGE OF MONTHLY INDEXES FROM 1929 TO 1938
1 T ■ T
STOCKS Of «ASO(JNC AT RCFINCRltS
CONSUMPTION Of GASOLINE
/ 1
.-/ 1
\\
/
^""-^
^ ..-'
J
50LINE >
/
'. 1
.v
RETAIL PBICES OF SA
■■■""'•■^
^,^
■ ^
\.
..
_.-••■'
\
"-->.
■>
/
.-'
'^"^'t'-W-C.^
/
CXUDE OIL PHOOOCTION
— I -p^^smts^y 1 1 —
REFIWEBY ACTIVITY
^y r
JM<^6r> tUMVrr or CUKttCNT 9U3t^n
Table 14. — Seasonal (rends of selected phases of the petroleum industry, based on
the 10-year average of monthly indexes from 1929 to 1938, United States
Month
Crude
oil
produc-
tion
Refinery
activity
Con-
sump-
tion of
gasoline
Stocks of
gasoline
at re-
fineries
Retail
prices of
gasoline
January...
February..
March
April
May
June
July
-August
September
October...
November.
December.
97.2
89.6
100.5
98.7
104.3
101.0
105.1
104.7
99.7
102.6
97.3
99.3
96.0
97.6
97.2
100.7
100.9
103.6
103.4
103.3
101.3
99.8
98.3
97.1
79.6
74.3
92.0
99.5
106.8
112.4
112.7
116.4
108.8
106.5
98.7
92.2
104.2
117.0
120.8
117.7
111.9
101. 1
94.2
86.5
82.4
84.0
85.8
94.5
100.6
100.2
99.0
99.7
100.1
102.2
102.0
101.5
100.2
98.2
98.2
98.3
Source: Survey of Current Business.
78
CONCENTRATION OF ECONOMIC POWER
Table 15. — Purchases of gasoline by major oil companies, by years, 1929-38
[In 42-gal]6n barrels]
Name of company
1038
1935
Total
Atlantic Refining Co
Cities Service Co...
Consolidated Oil Corporation.-
Continental Oil Co.
Gulf Oil Corporation of Pennsylvania
Ohio Oil Co. -._
Phillips Petroleum Co
Pure Oil Co
Shell Union Oil Corporation
Skelly Oil Co -
Socony-Vacuum Oil Co
Standard Oil Co. (Indiana)
Standard Oil Co. (New Jersey)
Standard Oil Co. (Ohio)
Sun .Oil Co. -
Texas Corporation.
Tide Water Associated Oil Co. -
Union Oil Co. of California.
33, 070, 914
41, 128, 697
35, 187, 091
32, 459, 040
27, 480, 074
313, 922
1, 606, 501
1, 677, 000
1,718,667
1,411,746
494, 865
'267,512
1, 514, 932
1, 690, 522
370, 107
9, 225, 424
703,810
2,842,015
623, 572
4, 620, 049
1, 274, 033
2,100,512
615, 725
424,828
2, 323, 857
2,631,000
1, 978, 309
S, 480, 148
317,413
296, 089
1, 497, 688
1, 803, 033
398, 729
8, 291, 579
1, 243, 268
5, 516, 289
667, 733
4, 970, 031
2, 249, 295
2, 471, 933
507, 475
367, 526
854,004
4,284,000
1,691,935
3, 252, 301
124, 160
263, 264
1, 256, 612
2, 195, 691
541,750
8, 354, 321
1, 673, 058
1,942,242
598, 039
3, 857, 365
1, 068, 100
2, 677, 969
184, 754
210, 186
2, 533, 695
4, 130, 000
1, 877, 299
1, 778, 310
304,699
436, 294
921, 707
1, 254, 274
636, 226
8, 192, 281
1, 024, 858
1, 399, 971
326, 403
3,911,116
851, 366
2, 439, 283
331,072
220, 602
1, 552, 701
1, 846, 000
1, 836, 892
1, 972, 616
330, 862
74,883
702, 632
1, 262, 238
363, 775
8, 030, 438
1, 023, 556
1, 160, 093
169, 047
3, 190, 573
1, 099, 200
2, 288, 028
355, 938
Name of company
1933
Total
Atlantic Refining Co
Cities Service Co
Consolidated Oil Corporation..
Continental Oil Co -..
Gulf Oil Corporation of Pennsylvania
Ohio Oil Co _
Phillips Petroleum Co -
Pure Oil Co
Shell Union Oil Corporation
Skelly Oil Co
Socony-Vacuum Oil Co.. _..
Standard Oil Co. (Indiana)
Standard Oil Co. (New .Jersey)
Standard Oil Co. (Ohio)
Sun Oil Co....
Texas Corporation
Tide Water Associated Oil Co.
Union Oil Co. of California..
34, 372, 629
607, 280
2, 312, 365
1, 571, 000
1, 320, 480
928,623
315, 154
377, 842
942, 061
2, 089, 002
293, 742
0,923,175
8, 684, 991
1,340,053
239, 795
3, 769, 810
443, 792
2, 177, 998
26, 466
35, 544, 351
542, 986
1, 748, 393
1, 574, 000
1, 636, 312
308, 090
18, 423
178,127
320, 908
1, 047, 591
127, 971
9, 143, 657
10, 770, 766
1,543,014
323, 503
2, 837, 821
456, 976
2, 850, 451
115, 362
43, 189, 491
1,113,583
1, 634, 281
1, 502, 000
1, 894, 623
642, 120
40, 160
425,316
216, 307
1, 093. 528
168; 882
12, 347, 892
11,511,567
571,009
1. 583. 137
3, 031, 582
2. 380. 138
2, 972, 966
60,400
1930
51, 698, 661
2, 316, 284
3, 733, 248
1, 470, 000
2, 095, 854
1, 573, 894
32, 861
513, 032
274, 054
1, 365, 107
62, 857
13, 161, 507
9, 817, 032
3, 224, 692
1, 576, 733
4, 196, 155
239, 778
5, 733, 454
312, 119
52, 073, 212
3, 704, 738
4, 188, 756
S89, 000
1 2, 879, 120
1, 515, 712
3,429
433, 327
642, 088
1, 370, 832
52, 251
12,970,181
4, 530, 809
3, 229, 242
2, 390, 816
4, 377, 765
525, 035
8, 015, 242
. 354, 869
• f Estimated figure.
Purchases exclude imports, except in the cases of Cities Service Co. Standard Oil Co., (New Jersey) and
Union Oil Co. of California where the preliminary analysis does not indicate whether or not imports are
included in purchases.
Source: Temporary National Economic Committee Questionnaire for Oil Companies. Standard Oil
Co. of California and Mid-Continent Petroleum Corporation did not answer the committee's questionnaire.
C50N0ENTRATI0N OF ECONOMIC POWER
CHART XII
79
YEAR -END STOCKS OF CRUDE OIL AND PRINCIPAL
PRODUCTS IN THE UNITED STATES
20 MAJOR COMPANIES AND "ALL OTHER" COMPANIES
1926, 1931, 1935-37
MILLIONS OF BARRELS
400
300
200
REFINABLE CRUDE OIL
■Tm
RESIDUAL
FUEL OIL*
1926 '31 '35 '36
MILLIONS OF BARRELS
FINISHED GASOLINE •»
VBV
'35 '36 '37
GAS OIL AND
DISTILLATES
FUEL OILS
lU
KEROSENE
LUBRICANTS
'36 '37 '26 '3' '35 '36 '37 '26 '31 '35 '36
LEGEND -
H 20 MAJOR COMPANIES ^^ "ALL OTHER" COMPANIES
PERCENTAGES OF AGGREGATES OF THE
SIX SELECTED STOCKS HELD BY:
"ALL OTHER"
COMPAfJIES
* INCLUDING H£AVT CRUOE Oil fob CALirORNIA. COMPARABLE DATA NOT AVAILABLE F0« 1936
• • ^OB IS26, INCLUDES STOCKS AT REMNERlES ONLT i FOR OTMCR TEARS, INCLUDES STOCKS AT
REFINERIES, eu-_K TERMINALS, AND IN P]PE LINES-
SOURCE: U. S. BUREAU OF MINES
80
CONCENTRATION OF ECONOMIC POWER
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CHABT XIV
X'ASH
oiee.
CRUDE OIL TRUNK PIPE LINES IN THE UNITED STATES
MAY 1939
'OAHO
<'T4l#
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278523 — (1— No. 39 (Face p. 80)
CONCENTRATION OF ECONOMIC POWER
81
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82
CONCENTRATION OF ECONOMIC POWER
11
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CHART XVI
GASOLINE PIPE LINES OF THE UNITED STATES
MAY 1939
' »«»(0>
i I
UtKM - TCWOURT MincaM. COONMM OMHITTn OUUtmuiRI
278523— 4 1— No. 39 ( Face p. 83) -
(OUKOt — nufelUJIt lunCNAk lOONOIHe CMMITTn QtlUTIOIUIIIf
^78523— 4 1— No. 39 ( Face p. 83) •
CONCENTRATION OF ECONOMIC POWER
83
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U to y
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N<o»in.nr>a)o»o — «iio^
84
CONCENTRATION OF ECONOMIC POWER
5 5 gS
£ 7 ff
.5 S?
i SI
wt
¥ft
1 1 1 M I II I n 1 1 1 II m I
r^ O o to o.
d <3 ui K
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35
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CONCENTRATION OF ECONOMIC POWER
85
Table 17. — Gasoline pipe-line mileage owned and operated by major oil companies,
Dec. 31 of years 1928-38
Name of company
1928
1929
1930
1931
1932
1933
1934
1935
1936
1937
1938
Total
236
769
1,054
4,071
4,127
4,256
4,764
4,947
5,532
6,042
Atlantic Refining Co
200
186
226
186
766
226
186
764
58
226
186
764
139
408
186
736
140
530
186
736
140
815
186
736
142
815
186
799
143
818
186
799
186
186
Phillips Petroleum Co..:
Pure Oil Co
143
Shell Union Oil Corporation
410
81
40
634
i79
40
534
179
40
534
180
40
534
183
40
634
186
40
536
363
40
536
363
40
644
39
849
13
170
2,081
363
Standard Oil Co. (Indiana)
Standard Oil Co. (New Jersey)..
Standard Oil Co. (Ohio)
40
40
533
40
(»)
192
Sun Oil Co
733
13
147
1,247
.733
13
146
1,248
733
. 13
149
1,292
733
178
146
1,480
733
178
158
1,518
847
178
171
1,518
849
Tide Water Associated Oil Co...
Union Oil Co. of California
Great Lakes Pipe Line Co.*
10
(')
10
(')
13
0)
(')
175
2,134
' Not available from the company's recorcjs.
'Jointly owned by Continental Oil Co.. 29.2 percent; Mid-Continent Petroleum Corporation, 19.0 per-
cent; Skelly Oil Co., 14.2 percent; the Texas Corporation, 12.1 percent; Pure Oil Co., 9.5 percent; Consoli-
dated Oil Corporation. 5.8 percent; Cities Service Co. ,"5. 2 percent; Phillips Petroleum Co., 5.0 percent.
Consolidated Oil Corporation, Continental Oil Co.. Gulf Oil Corporation of Peimsylvania, Ohio Oil Co.,
Skelly Oil Co., and the Texas Corporation reported no gasoline pipe line owned or operated during the abova
years.
' Not reported.
Source: Temporary National Economic Committee Questionnaire for Oil Companies: Standard Oil
Co. of California and Mid-Continent Petroleum Corporation did not answer the committee's questionnaire.
278523— 41— No. 38
86
CONCENTRATION OF ECONOMIC POWER
cc
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CONCENTRATION OF ECONOMIC POWER
87
Table 18.
-Rate of return on pipe line investment for oil companies reporting to the
Interstate Commerce Commission, 1938
Name of company
Investment
in carrier
properly (after
depreciation)
Pipe line
operating
Indome
Rate of
return
Atlantic Refining Co
Consolidated Oil Corp
Tide Water Assoc. Oil Co.'
Gulf Oil Corp. of Pa
Jointly Owned Majors...
Shell Union Oil Corporation...
Socony- Vacuum Oil Co
Phillips Petroleum Co...
Standard Oil Co. (Ind.).
Pure Oil Co.» _
•Ohio Oil Co.'
Standard Oil Co. (N. J.)
Standard Oil Co. (Ohio)
Texas Corporation
Cities Service Co '.
Continental Oil Co '..
All major companies
All independent companies
All crude oil pipe lines?
19,
3,
37,
37,
82,
24,
4,
36,
5,
12,
63,
2,
21,
4,
4,
307,
23,
374,
233,850
723, 862
315, 037
577, 912
799, 548
839,860
215, 540
594, 716
359, 957
665, 170
512,440
736,798
321, 303
293, 255
868, 758
246,281
204, 287
144, 350
377, 510
$3, 156, 207
9, 903, 257
1, 244, 772
11, 243, 968
10, 926, 650
6, 469, 098
6, 772, 627
1, 082, 057
8, 037, 903
1, 193, 638
2, 555, 719
12, 414, 427
437, 917
3, 707, 955
406, 996
324, 083
79, 877, 274
2, 170, 188
95, 140, 882
50.6
50.2
37.6
29.9
28.9
28.3
28.0
23.6
22.1
21.4
20.4
19.5
18.9
17.4
8.4
7.6
26.0
9.4
25.4
' Includes Bradford Transit Co., 50 percent of whose stock is owned by South Penn Oil Co.
> Includes Bell General Transit Corporation.
' Includes Arkana Transit Corporation, 60 percent of whose stock is owned by Arkansas Fuel Oil Co.
<a Cities Service subsidiary) .
Source: Annual reports to the Interstate Commerce Commission.
88
CONCENTRATION OF ECONOMIC POWER
IB?OX
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CONCENTRATION OF ECONOMIC POWER
89
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^
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90
CONCENTRATION OF ECONOMIC POWER
Table 20. — Number of domestic bulk plants, by major oil companies, by years,.
1929-38
Name of company
1938
1937
1936
1933
1932
1931
Total
Atlantic Refinin? Co
Cities Service Co
Consolidated Oil Corporation
Continental Oil Co
Gulf Oil Corporation of Pennsylvania
Ohio Oil Co
Phillips Petroleum Co
Pure Oil Co
Shell Union Oil Corporation
Skelly Oil Co
Socony-Vacuum Oil Co
Standard Oil Co. (Indiana)
Standard Oil Co. (Nevs' Jersey)
Standard Oil Co. (Ohio)
Sun Oil Co
Texas Corporation
Tide Water Associated Oil Co
Union Oil Co. of California
19, 783
19, 749
19, 803
19, 609
19, 540
19, 426
19, 240
19, 443
17, 396
15, 646
329
894
2,169
1,259
1,143
176
726
6:7
1, li)^
3 J
2,087
4,059
962
174
108
2,231
399
437
367
886
2,187
1,273
1,137
175
728
"43
; jse
298
2,079
4,627
979
176
109]
2, 133,
3841
432
407
877
2,201
1,287
1,115
182!
7161
5491
1,219
289
2, 065
4, 725
991
174
121
2,070
381
434,
415
865
2, 224
1,313
1,093
174
718
518
1, 116
273
2,012
4,698
1,028
168
119
1,994
365
436;
427
852
2,199
1,365
1,083
196
727
485
1,197
250
1,996
4,722
1,082
168
119
332
436
442
839
2,100
1,377!
1,22s
195
720
404
1,210
234
1,990
4,700
1,083]
179
114
1, 8091
3081
434.;
44?
S23
2,086
1,331
1, 223
194
730
357
1,172
216
1,997
4, 708
1, 088'
197
117
1,823
303
428i
445
840
2,075
1,319
1,249
203
669
295
1,179
205
2,078
4,842
1,228
223
114
1,766
291
422
405
824
351
505
1,281
1,178
139
665
239
1,202
209
2,091
4,986
1,395
241
97
1, 751
274
419
1,227
1,088
13
342
191
907
184
1,981
4,759
1,372
299
77
1,720
230
400
Source: Temporary National Economic Committee Questionnaire for Oil Companies. The Standard
Oil Co. of California and the Mid-Continent Petroleum Corporation did not answer the committee's
questionmire.
Table 21.
■Number of domestic service stations, by major oil companies, by years,
1929-38
Name of Company
Total ,.
Atlantic Refining Co
Cities Service Co
Consolidated Oil Corporation
Continental Oil Co
Gulf Oil Corporation of Pennsyl
vania..
Ohio. Oil Co
Phillips Petroleum Co
Pure Oil Co., The
Shell Union Oil Corporation
Skelly Oil Co
Socony-Vacuum Oil Co
Standard Oil Co. (Indiana)
Standard Oil Co. (New Jersey)
Standard Oil Co. (Ohio)
Sun on Co
Texas Corporation
Tide Water Association Oil Co
Uniop Oil Co. of California
69, 666
1938
66, 052
131
2,515
9,611
1,666
7,438
15
1,572
36
6,527
630
9,045
11,241
417
2,314
682
9,607
2,166
4,053
1937
57
2,579
8,577
1,681
7,147
15
1,553
45
6,494
582
8,985
9,954
505
2,241
701
8,857
2,058
4,021
1936
59, 371
113
2,198
7,615
1,597
4,873
14
1,501
92
6,266
574
7,414
8,387
895
2,173
681
8,921
1,948
4,109
1935
75, 547
261
2,317
9,172
1,821
3,750
27
1,497
579
6,976
538
9,852
9,004
7,981
1, 957
677
13, 143
1,794
4,201
1934
98, 246
572
2,528
11,039
5,314
3,115
91
1,534
1,071
8,309
484
13, 775
12, 538
12, 250
2,188
648
17, 121
1,514
4,166
1933 1932 1931
125, 327
123,209 118,280
597 580
2, 733 2, 869
15,401: 14,244
7, lOli 5,814
5,613
339
1,576
1,058
9,766
428
17, 355
13, 998
17, 717
2,742
523
22, 713
1, 367
4,300
10, 174
324
1,490
052
8,623
388
18, 406
13, 556
17,012
2,696
474
23, 459
1,233
915
586
2,972
11,848
5,
13,290
270
1,307
765
7,540
347
19,216
14, 302
16,864
2,713
462
18, 666
1,118
948
79, 037
518
2,778
3,138
8, 3561- 1, 793
33, 704
394
1,031
1,332
134
380
464
3,082
285
6,702
9,187
156
1,418
345
5,571
880
550
Source: Temporary National Economic Committee Questionnaire for Oil Companies. The Standard
Oil Co. of California and the Mid-Continent Petroleum Corporation did not answer the committee's
questionnaire.
CONCENTRATION OF ECONOMIC POWER
91
CO -V <£> -V OO Q C^ Oi '^ >S) KO C^ 00 U2 <0 CO CC Oi t>^ ^ t^ OO C^ CC G t^ CO CO ^
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CO OOM t^ t^
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w-^ Oco
C^ «-t O O CO t^ CO CO IC t _
CI C^ OC CO CO '-' CO CO '-' OO lO < •-<
Ci OS «-■ t^ »0 CO »0 c: 1-1 Oi CO —
•^ CO N iO lO
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IN<N .
*OQ00
►-"OOb
corn OS
oocooioooow-^co
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coco •"tOiCO »-< c
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5
in ^ ^H r^ t^ r
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• ioco-<j"C^Trcocooc^cccor^-*f(NcoocDcO"_
;(N'<5<cC'e«coc^coi-<icoor^^O'-f^O'-i'-'
' ic~ CO c^ cc •-- u^ CO r^^ tt' ic cs~ -^~ o ic" •^'" lo oi" oT Q
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1-1 r^ 00 CO t-" 00
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a d t
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3-sl^i'SaSg??g£5fe&^>t;t.2^
rules 33 05.^ — — — -OajQ^ Q) a>0 ©O CjCJrf
.:5SSs:s:ssssz;z;;z2:2;zz:z;oo
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92
CONCENTRATION OF ECONOMIC POWER
ioS
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c« CD c5 ua CO "3 10
10 CO c^ "O 00 r^ <»
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- "Tf ■*?* (M 00 01 -:
52 [
0&
50
010 CO '-'^
■i I CO rr 00
— i-O t^CO
o' t-' 31' o"
coo i-^cs
CD *OOCO
iM C^O> CI
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♦ uow-.-.'^-^jtF-iC^iCoOW OOfNiOCO
■ CO O O M r- c
C^l O CS CO CI Oi (^ C
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tn a
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ro -o CI c^ c«
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r-go
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w: =j cB '
5i|li5i5ifji.i=^ill.E&i
CONCENTRATION OF ECONOMIC POWER
93
*C "^ ' M cs ^ »o c
C^ «■ « CO
'*cco'^'wooc^cooc:.cot^c^eo'(fooc^t^rcor^t-oo»OTrcoO'V»-«
■t CS h- -^f U7 CO C
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cc o c^ oc ^ r^
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ci ^. -^
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_ - e-> — -r- — •
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as
94
CONCENTRATION OF ECONOMIC POWER
Table 23. — Total gasoline consumption and domestic sales of gasoline by major
oil companies, by States, 19S8
State
Total con-
sumption 1
(1)
Sales by 18
majors ^
(2)
Percent
(2) -a)
(3)
Percent
principal
company
(4)
Number of
companies
(5)
Total.
Alabama
Arizona
Arkansas
California
Colorado
Connecticut
Delaware
District of Columbia.
Florida,.
Georgia
Idaho
Illinois
Indiana
Iowa
Kansas
Kentucky
Louisiana
Maine
Maryland
Massachusetts
Michigan.
Minnesota
Mississippi
Missouri '
Montana _..
Nebraska
Nevada
New Hampshire
New Jersey
New Mexico
New York..
North Carolina
North-Dakota ,
Ohio
Oklahoma
Oregon.
Pennsylvania
Rhode Island
South Carolina
South Dakota
Tennessee
Texas
Utah..
Vermont
Virginia
Washington
West Virginia
Wisconsin
Wyoming ^"
509, 665, 311
407, 688, 901
O.Q
482, 786
433, 571
049, 595
721,476
403, 976
606, 286
322, 905
316, 452
061, 976
066, 357
254, 786
781, 929
045, 619
573, 643
167,000
109, 286
899, 286
449, 190
475, 143
432, 381
094, 286
612, 500
615, 762
372, 833
823, 905
489, 381
948, 024
027, 524
748, 214
145, 405
909, 929
546, 405
030, 905
448, 214
564, 452
468, 690
418, 714
880, 619
656, 143
079, 881
717, 310
244, 762
208, 786
531, 500
456, 048
045, 881
532,119
915, 786
477, 690
3, 673, 794
1, 380, 372
3, 341, 244
20,818,657
4, 002, 008
7, 498, 084
1,489,575
2, 907, 793
6, 137, 683
6, 058, 229
1, 993, 278
24, 996, 484
12, 170, 894
8, 923, 904
6, 455, 293
3, 195, 962
5,601,651
3, 228, 054
6, 252, 403
15, 486, 609
21, 022, 374
9, 558, 010
2, 846, 392
10, 757, 676
1,683,821
3. 468, 920
440, 700
1,817,838
18, 886, 256
1, 548, 320
41, 818, 586
9, 139. 334
2, 326, 398
24, 758, 030
6,652,611
3, 533, 283
31, 320, 255
2, 880, 392
4, 447, 280
2, 420, 194
5, 960, 575
22, 169, 194
2, 523, 366
1, 474, 393
8, 434, 004
5, 006, 687
3, 878, 256
9,512.931
1, 690, 954
67.0
56.8
82.5
49.9
74.1
98.6
112.6
87.7
76.1
75.1
88.4
78.6
80.9
70.9
57.8
52.3
94.8
93.6
96.5
94.2
83.8
75.8
61.6
74.9
59.6
63.2
46.5
89.7
95.6
72.2
97.4
95.7
76.7
81.3
69.6
64.6
94.0
100.0
95.6
78.6
88.7
73.3
114.3
96.3
99.7
62.2
85.6
73.7
114.4
9.5
15.1
15.4
20.9
12.8
18.3
23.3
27.3
27.8
16.4
18.9
20.8
21.6
23.7
21.2
11.7
18.3
26.0
24.2
23.5
21.7
18.8
20.1
14.3
16.2
17.5
12.3
16.6
25.3
26.6
20.8
25.7
28. 4
30.3
23.9
13.1
19.2
22.0
19.8
28.7
24.5
25.4
15.3
61.5
25.9
30.8
19.0
37.1
21.3
40.1
Source:
' American Petroleum Institute.
' Temporary National Economic Committee Questionnaire for Oil Companies. Standard Oil Co. of
California and Mid-Continent Petroleum Corporation did not answer the committee's questionnaire.
CHART XIX
PERCENTAGE OWNERSHIP OR CONTROL BY MAJOR OIL
COMPANIES IN VARIOUS BRANCHES OF THE
PETROLEUM INDUSTRY
BRANCH OF INDUSTRY NUMBER OF PERCENT
TOTAL INVESTMENT 2o/
PRODUCING OIL WELLS 4b/.
CRUDE OIL PRODUCTION 4c/
CRUDE OIL GATHERING PIPE LINE MILEAGE 4d,
CRUDE OIL TRUNK PIPE LINE MILEAGE 3g/
CRUDE OIL PIPE LINE MILEAGE 4d,
INVESTMENT IN PIPE LINES 3a/
PIPE LINE OPERATING INCOME 3e,
DEADWEIGHT TONNAGE OF TANKERS l_f,/
STOCKS OF REFINASLE CRUDE OIL 4b,
DAILY CRUDE OIL CAPACITY 5^/
DAILY CRACKING CAPACITY 5g/
CRUDE OIL RUNS TO STILLS Ife/.
PRODUCTION OF GASOLINE 4c,
STOCKS OF FINISHED GASOLINE 4^b,
STOCKS OF LUBRICANTS 4^
SIX SELECTED STOCKS FIGURES 4 b
GASOLINE PIPE LINE MILEAGE Zq/.
DOMESTIC SALES OF GASOLINE 2e,
O'DEC. 31, 1938; b- DEC. 31, 1937; c«l937; (i = JUNE 30,1936; e = l938; f-SEPT. 30, 1938; g • JAN. 1, 1938
1. U.S. MARITIME COMMISSION AND PETROLEUM CONSERVATION DIVISION, DEPARTMENT OF THE INTERIOR
2. MOODY'S MANUAL OF INVESTMENTS: TEMPORARY NATIONAL ECONOMIC COMMITTEE QUESTIONNAIRE
FOR OIL COMPANIES, AND AMERICAN PETROLEUM INSTITUTE
3. INTERSTATE COMMERCE COMMISSION ^^^
4. U. S. BUREAU OF MINES ^Hj
5. U.S. BUREAU OF MINES. INCLUDES RICHFIELD OIL CORPORATION
278523—41 — No. 39 (Face p. 95)
PERCENT
40 60
MAJOR COMPANIES
OTHER COMPANIES
CONCENTRATION OF ECONOMIC POWER
95
Table 24. — Quantities of gasoline sold in the United States by major oil companies
to which tetraethyl lead, purchased from the Ethyl Gasoline Corporation, was added
in any quantity for use in blending, by years, 1929-38
[Thousands of 42-ganon barrels]
Name of company
1938
1937
1936
1935
1934
1933
1932
1931
1930
1929
Total
AtHntic Refining Co. (The)
Cities Service Co
Consolidated Oil Corporation
Continental OU Co
Gulf on Corporation of Pennsyl-
vania
Ohio OU Co. (The)
Phillips Petroleum Co..i
Pure Oil Co. (The)
Shell Union Oil Corporation
Skelly OilCo..
Socony-Vacuum Oil Co
Standard Oil Co. (Indiana)
Standard Oil Co. (Xew Jersey)
Standard Oil Co. (Ohio)
Te.xas Corporation (The)
Tidewater Associated Oil Co
Union Oil Co. of California.
310, 085
304, 434
279, 124
249, 681
225, 101
92, 811
26,306
40, 480
35,324
22, 660
11, 732
14, 341
27, 563
8,942
29,598
3,146
11,631
14.440
5.052
3,683
41, 168
27, 651
40, 2(i9
8,086
39,909
17, 249
5,625
11,484
14, 425
27, 442
9,112
29,048
3,161
11.366
15.012
3,372
3,635
40, S53
28, 434
39,011
7,880
39, 579
17, 026
3,594
10, 626
13,264
24,760
8,672
25, 453
2,890
10, 476
14, 488
4, 345
3.520
38, 543
26, 973
35, 681
7,222
34, 912
16, 025
1,374
9,830
12, 665
20,674
8,089
22, 799
2,630
9,404
12, 857
2,073
3,343
34, 004
23. 843
32,211
6,307
30, 329
14,297
4,326
9,477
9,398
18, 100
7,824
21,845
2,285
8,362
10, 891
1,538
2,767
30, 522
22, 273
28, 175
6,087
27, 114
15, 341
3,102
2,674
2,068
772
3,560
9,600
906
4,172
5,271
1,131
1,374
18, 463
10, 947
18, 749
4,499
1,442
7,030
153
815
316
1,549
592
2,192
255
863
603
1,929
223
3,817
4,215
4,034
1,381
2,259
1,085
178
1,015
605
2,237
942
1,444
152
1,474
1,104
214
500
291
26
137
6, .532
10, 006
7,214
3,246
2,060
1,940
478
3,310
7,103
5,431
3,165
1,581
508
Sun Oil Co. states it does not use tetraethyl lead; Standard Oil Co. of California and Mid-Continent Pe-
troleum Corporation did not answer the questionnaire.
Source: The Temporary National Economic Committee Questionnaire for Oil Companies.
INDEX
Page
ADVERTISING: As a source of integration 1 - 6
AMERICAN PETROLEUM INSTITUTE:
Coordinator of majors' policies 6-7, 51
Publications of 7, 16
Statements by representatives of " 12, 15
ATLANTIC REFINING CO., THE {see also Major oil companies)-. 41, 45-46
BARGES 38
BASING POINT SYSTEMS . 43-44,48
BULK PLANTS 41,43,90
BUREAU OF MINES, UNITED STATES 16
CALIFORNIA. (See States.)
CAPITAL INVESTMENTS 1, 57, 59, 60, facing 95
CARTEL, PACIFIC COAST 34r-35
CITIES SERVICE CO. (see aZso Major oil companies) - 15,30
COMPETITION, RESTRAINT OF. (See Major oil companies.)
CONCENTRATION OF POWER. (See Major oU companies.)
CONNALLY ACT - 16
CONSERVATION MEASURES: : 13-16
CONSOLIDATED OIL CORPORATION (see aZso Major oil companies). 41
CONSUMER INTEREST: Not treated XI
CONTINENTAL OIL CO. (see also Major oil companies) 30
CONTRACTS, EXCLUSIVE. :. 48
CRACKING: Control of, by major oil companies • 31, 33, 72, facing 95
CREDIT CARDS: Effect of 48,49
CRUDE OIL:
Conservation measures for 13-16
Control of production of, bv major companies 4-5,
9-18, 24-25, 64-70, facing 95
grilling for, technical considerations in 9-10
Pipe lines.. - : . - 19-26, 37, 44, 80-84, facing 95
Prices of. 14, 25, facing 71
"Price squeeze" and 32-33
Production of, quantity of 57-58, 63, 66-67, 69, 73-74, facing 95
Reserves of 10-11, 17, 63-65
Stocks of •. 79
Transportation of . 19-28, 37-38
DAILEY, JOHN W.: Testimony of . 13
DEALERS (See Service stations.)
DeGOLYER, E.: Testimony of 10, 12
DIVISION OF TERRITORY 45-46,50,88-89,91-94
DRILLING. (See Crude oil.)
EAST TEXAS OILFIELD . 9,14,16,32-33,52
EMPLOYMENT: In oil industry 1
ETHYL GASOLINE CORPORATION 31,44-45,95
EXCHANGING: Of gasoline 35
EXCLUSIVE CONTRACTS ..- 48
PARISH, W. S.: Cited ... 17
FEDERAL OIL CONSERVATION BOARD : 15
FEDERAL TRADE COMMISSION: Quoted 20,23
FORECASTS: Method of market control 16-17
FORM 88 LEASE , 12
GASOLINE:
Consumption of 57-58, 91-94
Exchanging of ^ . . 35
Leaded, sales of 95
97
98 INDEX I
GASOLINE— Continued Page
Marketing of . 41-50, 88-89, 91-94
Pipe lines 37-39, 44, facing 83, 85
"Price squeeze" and 32-33, 42-43
Production of 73, 75
Purchasing of, by major companies 34, 35, 78
Recovery of : 29
Stocks of 79
GILL, STANLEY: Cited 17
GREAT LAKES PIPE LINE CO--. 38-39,44
GULF COAST BASING-POINT SYSTEM 44
GULF OIL CORPORATION {see also Major oil companies) _ . 5, 10, 31, 34, 37
HAGER, DORSEY: Quoted 6,32
HARKNESS INTERESTS 4, facing 60
HEPBURN ACT _-_- 23-24
HUMBLE OIL AND REFINING CO 5, facing 71
ILLINOIS. {See States.)
INDEPENDENTS (C/. also Major oil companies):
Basing point systems and 43-44, 48
Drilling permits, problem in getting 12-13
Ethyl Gasoline Corporation and 44^45
Gasoline, sales of. {See marketing of.)
Jobbers 42-44, 52
Marketing of 5, 52. facing 95
Monograph written for ^ XI
Mortality of, in East Texas j 33, 52
Patents and 31, 52
Pipe lines and 5, 20, 21, 23, 24, 37, 52, 80-85, facing 95
"Price squeeze" on 32-33, 42
Prorationing and . 14, 17-18, 32-33, 52
Prospecting activities of 9, 52
Refineries of _ - _ ^ 5, 30, 33, 52, 71-73, 76, facing 95
Stocks of petroleum 5, 79, facing 95
Tankers and 5, 27, 86, facing 95
INTEGRATION:
Advantages of " 5-6
Prorationing and 14
INTERSTATE COMMERCE COMMISSION:
Quoted 20, 21
Regulations of 22
INVESTMENTS 1, 57, 59, 60, facing 95
IOWA PLAN 42, 45, 50, 52
JOBBERS, GASOLINE - .._ 42-45,48,52
LARGE-SCALE ORGANIZATIONS. {See Major oil companies.)
LEASING OF OIL LANDS 1 11-12
MADISON OIL CASE 42,47-48
MAJOR OIL COMPANIES:
Assets of 3, 5^-60, 61, facing 95
"Basing point" svstems of 43-44, 48
Bulk plants of--_" . 41, 43. 90
Capacity operation of refineries 33-34
Control by, extent of 4-5, facing 95
Corporate organization of 3-5
Cracking, control of 31, 33, 72, facing 95
Credit cards 48, 49
Crude oil, control of- 4rj5, 9-18, 24-25, 64-70, facing 71, 73-74, 79, facing 95
Dealers and. {See Service stations and.)
Division. of territory of. {See Marketing territories of.)
Ethyl Gasoline Corporation and - 44-45, 95
Exclusive contracts and 48
Gasoline:
Exchanging of 35
Marketing of. {See Marketing.)
Production of 73, 75
Purchases of 34.35.78
Sales of 41-50,88-89,91-94
Stocks of 79, facing 95
INDEX 99
MAJOR OIL COMPANIES— Continued. Page
Integration of 5-6
Jobbers and 42-45, 48, 52
Leasing of oil land 11-12
Marketing of 6, 41-50, 8S-89, 91-95
Marketing territories of . 45-46, 50, 88-89, 91-94
National Recovery Administration and 34-35
Patents, control of 31-32
Pilot stations of 46-47
Pipe lines and 4-6, 19-26, 37-39, 80-85, 87, facing 95
Price maintenance by 13-16, 34r-35, 44-48
"Price squeeze":
On jobbers ' 42
On refineries 1 32-33
Profits of . 6, 61
Proratiouing and . 14-18, 32-33
Prospecting technique of 9
Rebates of 26-28, 39
Refineries, control of 30-34, 71-76, facing 95
Service stations and 6, 22, 41, 45-50
Sizes of 3, facing 95
Stabilization and . 13-16
States of incorporation of ^- 3-4
Stockholders of 4, facing 60, 62
Stocks of petroleum of 79, facing 95
Subsidiaries of 1 . 3, 25-26,31-32,38-39
Supplies, service station and automotive, sales of 47
Tankers of 26-27, 86, facing 95
Territorv, division of. (See Marketing territories of.)
MARGINS, NARROWING OF 32-33,42-43
MARKETING:
Control of 16, 22, 41-50, facing 95
GasoHne 41-50, 88--89, 91-94
Losses by majors in 6, 22, 50
Territories, major companies' 88-89, 91-94
MELLON INTERESTS •_ 2, facing 60
MID-CONTINENT PETROLEUM CORPORATION. {See Major oil
companies.-^
MOTOR VEHICLE REGISTRATIONS 2,57-58
NATIONAL BUREAU OF ECONOMIC RESEARCH: Quoted 20
NATIONAL RECOVERY ADMINISTRATION 16,34-35,49
OHIO OIL CO., THE. {See also Major oil companies) - 37
OIL. (.See Petroleum.)
OKLAHOMA. (See States.) .
PACIFIC COAST CARTEL : 34^35
PATENTS: Control of, by major oil companies J .. 31-32
PELLEY, J. J.: Quoted 49
PETROLEUM:
Basic factors in control of 3-7
Marketing of 41-50
Production of crude :. 9-18
Refining of 1 29-36
Transportation of 19-28, 37-39
PETROLEUM INSTITUTE. (See American Petroleum Institute.)
PETROLEUM RAIL SHIPPERS' ASSOCIATION: Quoted ^ 39
PHILLIPS PETROLEUM CO. (see aZso Major oil companies) .49
PILOT STATIONS.. ----- 46-47
PIPE LINES:
Advantages of . 19-20
Control of oil industry by use of 4, 22-26
Crude oil 19-26, 37, 44, 80-84, facing 95
Gasoline 37-39, 44, facing 83, 85, facing 95
Profits of 6, 21-23, 25-26, 37, 84, 87, facing 95
POOLING:
Gasoline buying. .: 34
Of tankers - 26-27
100 INDEX
Page
POSTING OF PRICES 45-46, facing 71
PRICES:
Leadership in setting of 45-46
Maintenance of 13-16, 34-35, 44-48
PRICE SQUEEZE:
On jobbers 42
On refineries 32-33
PRODUCTION OF OIL. (See Crude oil.)
PROFITS. {See Major oil companies; Pipe lines.)
PRO RATIONING IN OIL FIELDS 13-18, 32-33, .52
PURE OIL CO., THE {see also Major oil companies) 5,31
RAILROAD TRANSPORTATION:
Gasoline 37-38, 49
Oil- 19
REBATES 25-27,39
REFINING:
Capacities — independents and majors 33-34, 71-76, facing 95
Control b.v major companies of 22, 30-34, 71-76, facing 95
Functions of 29
"Price squeeze" on 32-33
RETAILING. {See Service stations.)
ROCKEFELLER INTERESTS XI, 4, facing 60
SEASONAL TRENDS 77
SERVICE STATIONS:
Losses on, by major companies ^ _ 6, 22. 50
Margins of-1 50, 52
Numbers of, total and major companies 41, 90
Pressure ony^ by major companies 45-5U
SHATFORD, JOHN E.: Quoted . 11
SHELL UNION OIL CORPORATION (see also Major oil companies) . . 4,
23 30 41 43
SINCLAIR PIPE LINE CO -.'.-.' '24
SIZE:
Of the industry L 57-58
Of the major companies 3, facing 95
SKELLY OIL CO. (see aZso Major oil companies) 31
SOCONY-VACUUM OIL CO., INC., (see also Major oil companies)... 5, 10, 42
STABILIZATION: Of oil production 13-16
STANDARD OIL CO. (INDIANA) {see also Major oil companies) 5,
22, 24, 31, 41-45, 48
STANDARD OIL CO. (NEW JERSEY)' {see also Major oil companies).. 5,
10, 24, 30, 31, 44-45, 47, 49
STANDARD OIL CO. QF CALIFORNIA (see also Major oil companies) . 5, 9
STANDARD OIL CO., THE (OHIO) (see also Major oil companies).. 22, 31, 41
STANDARD OIL TRUST:
Operation of ^- 5, 20, 38, 4 1 , 45, 50, 5 1
Power of . XI, 2, 20, 25
Successors to '. 3, 4
STANDARD STATISTICS, INC.: Quoted 25, 33
STATES:
Of incorporation . 3-4
Major-company sales in . 88-89, 91-94
Refineries in , 30
Regulation of oil fields 1 11, 13-16,52
STOCKHOLDERS . 4, facing 60, 62
STOCKS: Of petroleum products 79, facing 95
SUN OIL CO. (see also Major oil companies) 4, 35, 39, 44
SUPPLIES, SERVICE STATION: Major companies' requirement to
handle 47
SWENSRUD, SIDNEY A.: Quoted 42
TANK CARS. (See Railroad transportation.)
TANKERS 19, 26-27, 37-38. 86, facing 95
TERRITORY, DIVISION OF 45-46,50.88-89,91-94
TEXAS. (See States.)
TEXAS CORPORATION, THE {see also Major oil companies) ._. 5, 10, 31, 41
I
INDEX
101
TEXAS OIL FIELD. (See East Texas oil field.) ^age
TIDE WATER ASSOCIATED OIL CO. (See Major oU companies.)
TRACKSIDE STATIONS -^"r--^ "^^
TRANSPORTATION OF OIL. (See Pipe bnes; Tankers; Railroad
transportation; Barges.)
TRUCKS: Elimination of jobbers by 4d
"TULSA PLUS": Basing-point system 43-44,48
UNION OIL CO. OF CALIFORNIA (see also Major oil Companies) _. . 5
UNITED STATES v. SOCONY-VACUUM OIL CO ^2, 47-48
WALSH, LOUIS J.: Testimony of 23,26-27
WELLS. (See Crude oiL)
O
278523 — 41— No. 39-
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