The Modern Era
The modern era of oil production began on August 27, 1859,
when Edwin L. Drake drilled the first successful oil well
69 feet deep near Titusville in northwestern Pennsylvania.
Just five years earlier, the invention of the kerosene lamp
had ignited intense demand for oil. By drilling an oil well,
Drake had hoped to meet the growing demand for oil for lighting
and industrial lubrication.
Drake's success inspired hundreds of small companies to
explore for oil. In 1860, world oil production reached 500,000
barrels; by the 1870s production soared to 20 million barrels
annually. In 1879, the first oil well was drilled in California;
and in 1887, in Texas. But as production boomed, prices
fell and oil industry profits declined.
In 1882, John D. Rockefeller devised a solution to the problem
of unbridled competition in the oil fields: the Standard
Oil trust, which brought together forty of the nation's
leading refiners. Through its control of refining, Standard
Oil was temporarily able to control the price of oil.
Striking Agreements
During the early twentieth century, oil production continued
to climb. By 1920, oil production reached 450 million barrels
- prompting fear that the nation was about to run out of
oil. Government officials predicted that the nation's oil
reserves would last just ten years.
Up until the 1910s, the United States produced between
60 and 70 percent of the world's oil supply. As fear grew
that American oil reserves were dangerously depleted, the
search for oil turned worldwide. Oil was discovered in Mexico
at the beginning of the twentieth century, in Iran in 1908,
in Venezuela during World War I, and in Iraq in 1927. Many
of the new oil discoveries occurred in areas dominated by
Britain and the Netherlands: in the Dutch East Indies, Iran,
and British mandates in the Middle East. By 1919, Britain
controlled 50 percent of the world's proven oil reserves.
After the First World War, a bitter struggle for control
of world oil reserves erupted. The British, Dutch, and French
excluded American companies from purchasing oil fields in
territories under their control. Congress retaliated in
1920 by adopting the Mineral Leasing Act, which denied access
to American oil reserves to any foreign country that restricted
American access to its reserves. The dispute was ultimately
resolved during the 1920s when American oil companies were
finally allowed to drill in the British Middle East and
the Dutch East Indies.
Eureka!
The fear that American oil reserves were nearly exhausted
ended abruptly in 1924, with the discovery of enormous new
oil fields in Texas, Oklahoma, and California. These discoveries,
along with production from new fields in Mexico, the Soviet
Union, and Venezuela, combined to drastically depress oil
prices. By 1931, with crude oil selling for 10 cents a barrel,
domestic oil producers demanded restrictions on production
in order to raise prices. Texas and Oklahoma passed state
laws and stationed militia units at oil fields to prevent
drillers from exceeding production quotas. Despite these
measures, prices continued to fall.
In a final bid to solve the problem of overproduction,
the federal government stepped in. Under the National Recovery
Administration, the federal government imposed production
restraints, import restrictions, and price regulations.
After the Supreme Court declared the NRA unconstitutional,
the federal government imposed a tariff on foreign oil.
Going Abroad
During the Second World War, the oil surpluses of the 1930s
quickly disappeared. Six billion of the seven billion barrels
of petroleum used by the allies during the war came from
the United States. Public officials again began to worry
that the United States was running out of oil.
It seemed imperative that the United States secure access
to foreign oil reserves. Increasingly, policy makers and
the oil industry focused their attention on the Middle East,
particularly the Persian Gulf, which they believed would
become the center of postwar oil production. As early as
the 1930s, Britain had gained control over Iran's oil fields
and the United States discovered oil reserves in Kuwait
and Saudi Arabia. After the war ended, Middle Eastern oil
production surged upward. Gradually, American dependence
on Middle Eastern oil increased.
During the 1950s, a combination of cheap fuel and a burgeoning
consumer culture led to an orgy of consumption. With only
six percent of the world's population, the United States
accounted for one-third of global oil consumption. Foreign
oil was so cheap that coal-burning utilities made the expensive
shift to oil and natural gas. World oil prices were so low
that Iran, Venezuela, and Arab oil producers banded together
in 1960 to form OPEC, the Organization of Petroleum Producing
States, a producers' cartel, to negotiate for higher oil
prices.
By the early 1970s, the United States depended on the Middle
East for a third of its oil. Foreign oil producers were
finally in a position to raise world oil prices. The oil
embargo of 1973 and 1974, during which oil prices quadrupled,
and the oil crisis of 1978 and 1979, when oil prices doubled,
graphically illustrated how vulnerable the nation had become
to foreign producers.
Unanticipated Side-effects
The oil crises of the 1970s had an unanticipated side effect.
Rising oil prices stimulated conservation and exploration
for new oil sources. As a result of increasing supplies
and declining demand, oil prices fell from $35 a barrel
in 1981 to $9 a barrel in 1986. The sharp slide in world
oil prices was one of the factors that led Iraq to invade
neighboring Kuwait in 1990 in a bid to gain control over
40 percent of Middle Eastern oil reserves.
In the century-and-a-half since Edwin L. Drake drilled the
first oil well, the history of the oil industry has been
a story of vast swings between periods of overproduction
- when low prices and profits led oil producers to devise
ways to restrict output and raise prices - and periods when
oil supplies appeared to be on the brink of exhaustion,
stimulating a global search for new supplies.
This cycle may now be approaching an end. It appears that
world oil supplies may truly be reaching their natural limits.
With proven world oil reserves anticipated to last less
than forty years, the age of oil that began near Titusville
may be coming to an end. In the years to come, the search
for new sources of oil will be transformed into a quest
for entirely new sources of energy.
Steven Mintz, the John and Rebecca Moores Professor of history at the University of Houston, is author of "America and its Peoples", "The Boisterous Sea of Liberty, Domestic Revolutions: A Social History of American Family Life", "Moralists & Modernizers: America's Pre-Civil War Reformers" and many other books in American Social History.
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