A large controversy erupted during this glut in the oil market in 1878. The major causes were, first, that Standard Oil (SO) wanted to retain its monopoly on it share of pipelines (SO controlled nearly half of the pipeline network). In order to continue to do so, SO connected new oil wells to their pipelines free-of-charge. Standard Oil constructed as much as 5 miles of new pipeline a day, PLUS built huge tank farms for surplus oil, which increased the storage capacity from 1 million to 4.5 million barrels. However, the oil producers had no discipline (or memory of past gluts), and produced far more oil than the system's capacity could hold. These very same "Over-Drillers", when their oil spewed on the ground since there was no place to transport or store it, blamed Rockefeller for their travails.
(Pictured: A Standard Oil Company Stock Certificate)
The oil producers responded with a tsunami of rage; to them, the pipelines were behaving in the same conspiratorial manner as the railroads. To most Americans in the 1870s, the railroads were to be equally available for all to use, and the oil producers felt the same about the pipelines . . . interestingly, it's the same argument that Natives used in dealing with whites - no one truly owned the land, it should be available to all. Rockefeller saw the entire situation much differently, in that he was taming a wild and unpredictable industry. Soon, intimidating Ku Klux Klan-like protests by union hotheads occurred at night, threatening Standard Oil with all sorts of nasty and violent retribution.
Rockefeller had the forward vision to position himself to profit from either surplus or scarcity in the oil market; but despite that foresight, he wasn't invulnerable. Tom Scott, the President of the Pennsylvania Railroad, entered the fray against Rockefeller again, this time using his refining and pipeline subsidiaries. Scott tried to win-over new refiners with bargain transportation rates, and he actually authorized construction of new pipelines from the new oil fields to seaboard refineries, which was a direct challenge to Standard Oil. Scott was trying to chop down Rockefeller despite the fact that 2/3's of all the oil the Pennsylvania Railroad carried was from Standard Oil.
Rockefeller had the New York Central and Erie Railroads trim their transportation rates to pressure the Pennsylvania Railroad to lower their freight charges. Also, Standard Oil purchased 600 oil tank cars from William Vanderbilt (pictured); Rockefeller had covered all his bases during his frontal assault against Tom Scott. Rockefeller had quickly humbled the world's largest freight carrier, which everyone assumed was invincible, including Tom Scott. In order to compete with Standard Oil, the Pennsylvania Railroad actually paid oil producers to let them ship their product.
(Pictured: the main Pennsylvania Railroad yard in Pittsburgh in flames)
President Rutherford B. Hayes sent federal troops to support state militias; American citizens watched in horror as the conflict intensified. After burning 2000+ freight cars, the strikers finally capitulated, but they had introduced America to a new era of labor strife.
Rockefeller had come VERY close to Standard Oil's property in the affected areas being taken or destroyed . . . in that respect, he was powerless, and very fortunate. Reeling, the Pennsylvania Railroad skipped paying out their scheduled dividend to investors, which sent the price of its stock plummeting. Finally, Tom Scott communicated (via intermediaries) that he was ready to negotiate a settlement with Rockefeller to end the nightmarish scenario.
That last demand taxed even Standard Oil's financial reserves, in that Rockefeller only had half of the $2.5m on hand. As a result, Rockefeller toured Cleveland's banks, telling each banker that he needed all the money they had, immediately. Yet, through all this, Rockefeller actually STRENGTHENED his alliance with Scott; his goal was always, if possible, to be conciliatory and to expand his influence.
Standard Oil agreed to ship at least 2 million barrels of oil per year via the Pennsylvania Railroad, while SO received an additional 10% rebate. Standard Oil (once again) became the "Oil Umpire" for the railroads, deciding on the percentage of oil shipments for each (PA 47%; NY Central and Erie, 21% each; Baltimore & Ohio 11%). And, to top it off, Standard Oil demanded that the Pennsylvania Railroad pay Standard Oil .20 per shipped barrel, like the NY Central and Erie Railroads. In the end, Rockefeller insured that the railroads could never again challenge his power and influence in the oil industry . . . Rockefeller's next big move to consolidate even more power and profit in the oil industry would come in 1882, with the creation of the Standard Oil Trust.