End of Oil Exchanges
In a sign of the growing power of John D. Rockefeller, Standard Oil Company brings an end to Pennsylvania’s highly speculative oil trading markets.
On January 23, 1895, the Standard Oil purchasing agency in Oil City notifies independent oil producers it will only buy their oil at a price “as high as the markets of the world will justify” – and not necessarily “the price bid on the oil exchange for certificate oil.”
Standard Oil’s action will bring an end to a popular “paper oil” market of brokers and buyers.
Before the 1870s, oil buyers took on-site delivery in wooden barrels they provided. Soon a rapidly growing pipeline infrastructure spawned “oil certificates” or “pipeline certificates.”
These negotiable new instruments were based on the number of barrels in a pipeline issued for delivery in kind. Since these certificates could be bought and sold, trading flourished in oil exchanges at Titusville, Petroleum Center, and Oil City.
“The necessity of a suitable place in which to trade oil certificates was one that followed the improved method of transportation, and was in fact apparent from the early stages of oil commerce,” explains an Oil City 1896 Derrick Souvenir Book.
Even in these early days of the industry, as many as 40 million barrels of oil could be represented by certificates.
But now with Standard Oil buying 90 percent of production and setting its own price independent of oil certificates, the company’s edict will end oil exchanges.
Marginalized by Standard Oil pricing strategy, they close one by one. The petroleum industry’s oldest exchange, established in 1871 in Titusville, is dissolved in 1897.
“During the later years the excitement of speculation has been greatly eliminated from the oil business, and this has so reduced the business as to make it a shadow of its former greatness,” the 1896 Derrick concludes about the Oil City exchange.
“Its members are scattered far and wide, but the glory of the days when fortunes were made and lost in hours and minutes, will ever be a memory with them and thousands of others.”
Learn more about the role of pipelines, oil exchanges and certificate speculators in “Scouts — Oil Patch Detectives.”
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