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Full text of "Investigation of concentration of economic power; monograph no. 1[-43]"

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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 

1.0 

.8 
1.0 

.4 



1.0 

1.2 

1.3 

3.0 

1.5 

1.4 

1.4 

1.5 



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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CONCENTRATION OF ECONOMIC POWER 55 

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June 1940. 
Fuel Oil Journal, monthly. New York City. 
The Lamp, monthly, Standard Oil Co. (New Jersey). 
Oil Weekly, Houston, Tex. 

National Petroleum News, weekly, Cleveland, Ohio. 
Oil and Gas Journal, weekly, Tulsa, Okla. 
Petroleum Marketer, montnly, Chicago, lU. 
Petroleum Times, weekly, London. 
Petroleum World, monthly, Los Angeles, Calif. 
Refiner & Natural Gas Manufacturer, monthly, Houaton, Tex» 
World Petroleum, monthly, Bayonne, N. J. 



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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5 = 



I? 



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. 


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» 


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1 I 








1 




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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 






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~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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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. 



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72 



CONCFNTRATION OF ECONOMIC POWER 



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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 


■■■""'•■^ 




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■ ^ 


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■> 




/ 


















.-' 


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/ 





















CXUDE OIL PHOOOCTION 



— I -p^^smt s^y 1 1 — 




REFIWEBY ACTIVIT Y 

^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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'XX 



278523 — (1— No. 39 (Face p. 80) 



CONCENTRATION OF ECONOMIC POWER 



81 



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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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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 



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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 



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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 



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3 


S?5 






M ><• 



IP 






2sgg 

o o m 
O 



go 

o 






go a 






90 (N 

CD 00. 



I^ CO Q ^ O 



(TO O »-i ■* 1-1 QO '^ 

cc u3 00 o 00 ^ 01 
c« CD c5 ua CO "3 10 



10 CO c^ "O 00 r^ <» 

C4 CO "M »CiO -(J* 1-1 
■VM O >0 CS iO 



BOB euo 






:.so 
J So 



cr-cj o CO CD 



»0 ^H h* 10 CO 

t-- CO *o *j* c^ 



TjicDQ t^C0C^CO-<*«O3Cp 

r-CJOO'-c^i^iocNooo 

TT'OOOS'— 'MOCOOO'^CO 



CDCC'-<«00'-'CpiO»Ot-" 



- "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 

■•(j^Tfl'odoo 

CO <-' -H -^ 

"5 w *c»o 



«30 I 



♦ uow-.-.'^-^jtF-iC^iCoOW OOfNiOCO 



■ CO O O M r- c 



C^l O CS CO CI Oi (^ C 



_. -^cDOfN-r^-r-cocco a>cooOi-H 



O 3 

tn a 



O-i'C 



o -w t^ c^ i~ ; 
c^"/: t^ CO r^ 






ro -o CI c^ c« 

t^O M *C4 GO 
?5 TO — ' ^ CO 



»-. X " »o : 



I, :o — O 
»0 Oi O t^ 



r-go 
Cl o 



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 



iSn 






;ss 






cc o c^ oc ^ r^ 

— • -f w ?1 o -H 



■ OOsiOcOcDoOOCCSt^ 



*ccocst^ccc^cn^w 



00 CO 



ci ^. -^ 



t-* C*J 1^ CO o 



I « CO <~ 
r^'^f ro' 



iSS 



goeooM 
_ - e-> — -r- — • 



»- « CM 



*-><-< M 






■OOM 




O" 



ao 



S8 M 

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- 



BOSTON PUBLIC LIBRARY 



3 9999 06351 929