|7.3 Alliances and counter alliances|
|End 1872, 80% of the American refiners, unite under the
presidency of Rockefeller in the National Refiners Association. As soon as the
producers learned it, anxious to see an oligopsone for their good formed, make a counter
alliance and unite in the Petroleum Producer's Agency. We have to consider the
producers psychology : scattered over vast territories, they had little interest for
things outside their own wells, and would unite only under extreme circumstances. Having
lived through the euphoric conditions of the first years, they excepted a return on
invested capital of no less than 50 %, and if they did not earned their total investment
in three years, they felt sorry.
But only oil at $5 a barrel could grant them such profits. And to have such a price, the only way was to unite to restrict production. Note that this is the first time in history that oil producers unite to restrict production, 100 years before OPEC !
|Rockefeller thus had to deal with the new producer's association which
asked him $ 5 a barrel. Instead of refusing, John D. Rockefeller smartly pledged
himself to buy oil at this price as long as the producers effectively restricted
their production. He thus showed his "good will and willingness to ally with them for
the good of the industry". This unhoped-for collaboration of the Standard calmed the
producer's anger and soon they stopped their protest.
But did Rockefeller abandon his dreams of conquest ... ? Only a few months afterwards, the Standard Oil announced that it would no more buy oil from the Petroleum Producer's Agency. You have not restricted production sufficiently, how can you expect that we continue to pay your price ? This reaction caught the producers by surprise and they did not react efficiently. Many were deep in debt and absolutely had to sell oil to avoid bankruptcy. A lasting freezing of production was thus impossible, and the Standard again dictated his terms. Dissentions soon consumed the alliance and after only 10 months, the producers association disappeared.
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