The Oil Hunt That Almost Killed Off Whales

The Oil Hunt That Almost Killed Off Whales

I know not all that may be coming, but be it what it will, I’ll go into laughing.

Herman Melville’s Moby Dick

Herman Melville’s literary classic Moby Dick is many things. It’s a story about the existence of a higher power. About good and evil. About self-examination. And about even social status.

It’s also a tale of a bloke seeking vengeance on a whale that bit half his leg off.

But you won’t catch us sympathising with the half-legged and neurotic protagonist Captain Ahab.

Our allegiance has always lied with Moby Dick, history’s most famous sperm whale and chief antagonist.

With good reason, we might add.

You see, the 1800s were a time when whale hunting was considered big business. So big, in fact, that, for a brief period, it accounted for a whopping fifth of the US economy.

In truth, the whaling industry completely transformed the north-eastern United States into one of the richest places on Earth.

Ships numbering in their hundreds would set out from ports across this vast region known as New England, stretching from Maine to Connecticut. They crossed the globe, seeking out and bringing home with them prized whale oil in vast quantities.

It may be hard to imagine now but whale oil was central to life in the 1800s. In an era long predating electricity, whale oil was prized for its use in oil lamps. It was a key component in candles that not only emitted no smoke, but which released no smell.

Yet its importance extended far beyond lighting alone. Not only was it also used to make household necessities like soaps and margarine, it made for an excellent lubricator at a time when the use of machinery was growing.

Of course, obtaining whale oil meant having to actually kill whales, which was much easier said than done.

Prior to America’s arrival on the scene, whaling techniques had been primitive and dangerous.

The British, for one, would hunt for whales by jettisoning smaller boats from ships. Scores of men would row out towing harpoons attached to ropes, sniping at whales like javelin throwers until they surrendered.

Victorious, these hardened men would drag the whales back to ships, tying them to hulls. From there, the whale was stripped of its skin and blubber, which was then boiled to make whale oil.

As you can imagine, this was quite an ordeal. And a deadly one at that.

However, by the 18th century, American seafarers had joined in on the great whale hunt in earnest, leading to a boom in whale oil supply.

New England became ground zero for the burgeoning whaling industry, partly because the region had limited choices. Soil in north-east United States wasn’t suitable for farming. So New Englanders took to the seas.

By 1712, American whale hunters had killed their first sperm whale.

By the time the 19th century rolled around, whaling had become a staple of New England life. Up to a thousand ships would set sail each year in search of sperm whales, with voyages sometimes lasting several years.

Every hunt was a huge undertaking. Not only was the act of hunting whales a task in itself, life on the seas was lonely and difficult. Still, the promise of adventure and money attracted thousands of men into risking their lives to scope out maritime gold on the seas.

What made this oil so lucrative was a substance buried deep in the head of a sperm whale — spermaceti.

No one is entirely sure what this matter is actually used for. But some marine biologists theorise that it’s involved in how whales communicate with one another.

Regardless, mankind found plenty of uses for it. And it wasted no time in securing as much of it as possible.

The oil that kick-started the industrial revolution

Perhaps the biggest impact whale oil had on society was in its application as a lubricant. In fact, it’s possible to make a strong case for whale oil being responsible for the industrial revolution.

Yet while whale oil was a boon for mankind, it was an existential crisis for the kings of the seas.

As demand for whale oil increased and hunting techniques improved, sperm whales faced extinction.

Were it not for the discovery of petroleum in the late 19th century, sperm whales might have gone the way of the dodo.

Luckily, they outlasted whale oil mania. As petroleum quickly took over the market towards the end of the 19th century, demand for whale oil plunged, bringing with it an end to the industry’s prominence.

Whale-sized profits

The rise and fall of the whale oil industry is a fascinating case study into just how little changes throughout history.

To show you what we mean, have a look at this chart:

Source: Global Financial Data

It shows the price of whale oil from 1792 through to 1912.

As you can see, whale oil spent a century going sideways before declining as the 20th century ticked over.

But have a look at that incredible spike around 1812.

From US$40 per barrel, whale oil rose to $250 in roughly 20 years — an incredible 525% surge in just two decades.

Impressive as that is, what this chart doesn’t show is why whale oil spiked as it did.

Sure, demand had gone up. But so had supply. And though demand may have been high, it alone couldn’t account for a 500% increase in prices.

No, what caused the price of whale oil to surge in fact was the War of 1812.

This conflict between the United States and United Kingdom increased demand while at the same time putting supply lines at risk.

This combination of supply and demand dynamics created a potent combination that led to huge price surges.

Yet such events are so rare in history that they’ve only happened twice since 1970.

Like lunar eclipses, they describe an alignment of two rare critical factors that send commodity markets flying.

On the two occasions these elements aligned in the past 50 years, it led to massive price movements in commodity-related stocks.

And now, it appears that these same factors are aligning once again.

Which means that the resources sector may be the most exciting sector to watch on the ASX in the decade ahead.


Jim Rickards Signature

Mat Spasic,
For The Daily Reckoning Australia