OIL SPECULATION

With all the talk about oil speculation, I thought I would give a little bit of history about oil speculation. Folks, this isn't the first time, nor the last time speculation will occur. It is the way of the stock market and especially commodities for it to happen.

With oil close to topping $150 per barrel - the topic of speculation is being brought up time and time again. This is not the first time speculation in oil has taken Americans by storm. One of the “first” oil speculations took place in Pennsylvania when oil was first discovered there in the 1850s. In 1854, George H. Bissell and his law partner Jonathan Eveleth bought the Oil Creek territory that had oil deposits for the sum of $5,000. They sent samples of the oil to a Dr. Benjamin Silliman at Yale College who drafted a report that was published by Eveleth & Bissell in 1855. His report opined that oil was the most promising illuminator as well as lubricator. The partners soon organized a joint-stock company named the Pennsylvania Rock & Oil Company. Dr. Silliman was selected as president with Eveleth and Bissell maintaining controlling interest. In 1857, the company selected Co. E.L. Drake as its superintendent and agent and off he went to Titusville to drill for oil. On August 28, 1859, oil was finally struck and the Titusville well became a national attraction. At the time of the find, oil was $1 per gallon. Speculators flocked to Oil City to make their fortunes. Land prices skyrocketed as speculators gobbled it up to drill their wells. Leases became a popular way for smart land owners to hold on to their land while reaping oil profits. See www.oil150.com for more info.

The first joint stock companies in the oil fields were not successful. The companies merely assessed the large group of owners a fee in order to raise capital to drill for oil. The “investors” could pull out at any time. A joint-stock company usually begins when a piece of “oil territory” is acquired and then a lawyer draws up articles of incorporation. Sometimes shares are sold to create “working capital” or investors give a sum of money to the company. “The shares have a certain par value, which must be plainly expressed on the face of the certificate, and on the books of the company.” (Eaton at p. 238). Some 600 joint stock companies were formed over the oil territory. The nominal stock in these companies varied from $50,000 to millions with the par value of the shares from one to one hundred thousand dollars.

Speculation came to a grinding halt for several reasons; by a great flood in March 1865 which destroyed oil and property, a war tax of $1 per barrel instituted in April, 1865, and the fraudulent nature of some of the oil companies. (Cone p. 81). “The oil companies fell, in Fall and Winter of 1866 and 1867, one after another, like a row of bricks.” (Id. at p. 84).

Next week - the 1910 Texas Oil Boom.