The Man Who Took on Standard Oil

The Man Who Took on Standard Oil

Marcus Samuel was a man with a problem.

In 1892, Samuel wanted to take on the most powerful energy company in the world: Standard Oil.

Except he didn’t know how.

Samuel was nothing if not brave, but he was facing an uphill battle.

Standard Oil dominated the oil business in the latter half of the 19th century. It turned John D Rockefeller into one of the richest men in history.

This was all thanks to the crude craze that had swept the United States after Colonel Edwin L Drake hit oil in Pennsylvania in 1859.

You see, crude oil’s original market was not cars, jets or generators. It was kerosene. This provided the ‘artificial light’ for homes, shops and factories.

The arrival of kerosene confounded and delighted everyone, especially those who, until its arrival, went to bed when the sun went down.

Kerosene changed all that. Suddenly, in shining a light on the dark, the evening was made available for entertainment.

Kerosene took the world by storm. So much so that, in the US, it became the fourth largest export by value in the 1880s.

But this explosion also led to widespread fears the boom would taper off.

As kerosene’s popularity took off, the moneymen at Standard Oil wondered if the oil supply would run dry and leave the entire business stranded.

They needn’t have worried.

Oil was springing up everywhere, from Ohio to Texas and Oklahoma to California. And Standard Oil kept getting bigger as it swallowed up these new markets.

But there was a problem.

There was one market Standard Oil couldn’t control: Russia.

The first oil wells in Russia were drilled in 1871–72 in Baku, the capital of modern-day Azerbaijan. Not long after, locals described seeing ‘oil fountains’ as crude oil came gushing out.

The first international oil competition for Standard Oil had arrived.

A historic company born from one man

Ludwig Nobel, an armaments manufacturer, sent his brother Robert to Baku to source wood from walnut trees to fulfil a government contract.

Except Robert got distracted.

Robert got so caught up in the oil fever that he spent the money on getting the family into the kerosene business instead.

It’s fortunate that he did because it turned into a huge boon for the Nobel family.

At the time, it was difficult to get Russian oil to market. In fact, Baku was a global backwater.

But Russian oil production was booming, and they needed to find a way to get it out to the world.

They settled on Asia. Its proximity and enormous market size made it the ideal place to cash in on.

Now, it is here that Marcus Samuel comes into the picture.

Samuel was an experienced trader based in London with links in the Far East. He was brought in to find a way to move Russian oil to Asia.

He came up with an audacious plan, one that he was able to pull off without Standard Oil catching on.

Samuel drove down the cost of shipping by designing a new oil tanker that had a slew of new safety features. This was important as sailors constantly feared that kerosene cargos would explode.

But he caught another, perhaps more important, break.

Samuel brokered a deal to use the newly-built Suez Canal in Egypt to cut through the Middle East on the way to Asia, shortening the journey significantly.

Prior to that, ships would have to traverse all the way around Africa in order to get goods to Asia. Not only was this costlier, it was less efficient and safe.

Meanwhile, his brother Robert built storage tanks right across Asia to receive these shipments. Importantly, specialist service insurance provider Lloyds of London gave Samuel insurance for his new ships despite the naysayers who said they’d never make it.

All this meant Samuel’s oil was cheap enough that Standard Oil couldn’t undercut him on price in Asia. This was the same method Standard Oil had used to kill its competition elsewhere.

Eventually, Marcus Samuel captured a huge share of the Asian market using his strategy, turning him into one of the richest men in Britain.

You may recognise the name of his company: Shell Transport and Trading, known better today as Royal Dutch Shell. Needless to say, Samuel’s gamble paid off big time.

But Samuel wasn’t done.

In 1901, he pioneered another trade development. He converted his fleet of ships to run on ‘fuel oil’ instead of coal. This drove up demand for crude oil as global shippers followed his lead just as the kerosene market was waning from the arrival of electricity.

Now, some 117 years on from Samuel’s revolution to seaborne fuelling, this same sector could again take centre stage for the crude oil market.

Regards,

Callum Newman Signature

Callum Newman,
Editor, The Daily Reckoning Australia