The History of Oil: From Drake’s 1859 Well to the Strait of Hormuz

The modern oil market began on 27 August 1859, when Edwin Drake’s well near Titusville, Pennsylvania reached a depth of 69.5 feet and struck crude. Since then the price of a barrel has fallen to 49 cents, to 13 cents and, for one afternoon in April 2020, below zero. It has also climbed to $147.27, and in 2026, when war closed the Strait of Hormuz, back above $110. No major market moves further, faster or for more reasons than this one.

This is the full history of oil, from Drake’s well and Rockefeller’s Standard Oil to OPEC, the paper barrel, the day prices went negative and the Hormuz crisis of 2026. It separates the record from the legend where the two part company, and it reads every episode as a trader would. Oil is the market where geology, politics, war and leverage meet, and it punishes anyone who forgets that the price on the screen is attached to real barrels that have to be stored somewhere.

Oil History at a Glance

A century and a half in one table. Every line is expanded in the sections that follow.

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Greatest Traders

Eighty-six lives read through Mind · Method · Money, from Livermore reading a chalkboard in 1892 to the traders still working from those ideas today. Told as they happened, with the losses left in, and every quotation traced to a source.

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Before Drake: Light From Whales and Seeps

People used oil long before anyone drilled for it. It seeped to the surface in western Pennsylvania, around Baku on the Caspian Sea and in dozens of other places, and it was skimmed off for medicine, waterproofing and fuel. In the mid-nineteenth century the pressing problem was light. The best lamps burned whale oil, which was expensive and getting scarcer. Chemists had learned to refine a clean-burning lamp fuel, kerosene, from coal and from the rock oil that collected in seeps, and a group of investors in Connecticut and New York became convinced that rock oil could be produced in quantity if someone could find a way to reach it underground.

Their company, the Seneca Oil Company, hired a former railroad conductor named Edwin Drake to try. Drake borrowed an idea from the salt-well drillers of the region, who bored deep holes to reach brine. The market for the product already existed. What did not exist was supply.

1859: Drake’s Folly

Drake’s operation on Oil Creek near Titusville moved so slowly that locals called it Drake’s Folly. Groundwater kept collapsing the hole until Drake drove an iron pipe down to bedrock and drilled inside it, a method the industry still uses. His backers gave up on him, and he borrowed to keep going. On 27 August 1859 the drill reached 69.5 feet. The next day the driller, William Smith, looked into the hole and saw oil standing near the top. The well produced around 25 barrels a day.

What followed was a rush to rival California’s gold rush a decade earlier. Within days others were copying Drake’s method along Oil Creek, boom towns sprang up along the valley, and supply swamped demand. According to the American Society of Mechanical Engineers, the price of crude fell from $20 a barrel in 1859 to 49 cents in 1861. By the mid-1860s producers had settled on the 42-gallon barrel, the unit in which every oil price is still quoted. Drake never patented his method, and the money he made soon ran out.

Rockefeller and Standard Oil

The man who brought order to the chaos was not a driller. John D. Rockefeller was a Cleveland produce merchant who saw that the money in oil was in refining and transport, not in the gamble of drilling. On 10 January 1870 he, his brother William, Henry Flagler and their partners founded the Standard Oil Company in Ohio. Standard cut costs relentlessly, bought out or undersold rivals, and used its size to win secret rebates from the railroads that carried its oil, which let it charge less than any competitor could survive on. By most accounts it came to control about 90% of American oil refining.

The backlash built for decades. In 1904 the journalist Ida Tarbell published The History of the Standard Oil Company, a detailed account of the rebates and the tactics used against competitors, and the government sued under the Sherman Antitrust Act. On 15 May 1911 the Supreme Court ordered Standard Oil broken into 34 separate companies. The pieces did not die. Standard Oil of New Jersey became Exxon, Standard Oil of New York became Mobil, Standard Oil of California became Chevron, and Standard Oil of Indiana became Amoco. Rockefeller owned shares in all of them, and the value of his holdings rose after the break-up, a story told in our Greatest Companies profile, Standard Oil: The Empire That Grew Richer the Day It Died.

For a trader, Standard Oil’s lesson is about who controls supply. For forty years one company decided how much oil reached the market and at what price. When that control was broken, the job of balancing supply and demand did not disappear. It passed to someone else, and the rest of this history is largely the story of who that someone was.

Spindletop, East Texas and the First Cartel

On 10 January 1901 the Lucas No. 1 well at Spindletop, near Beaumont, Texas, blew in as a gusher, and the balance of American oil shifted south. In 1902 Spindletop alone produced more than 17 million barrels, 94% of the state’s output, and according to the Texas Almanac the price fell to 3 cents a barrel. The pattern of Titusville repeated on a bigger scale: a flood of supply, a collapse in price, and a scramble among producers who could not stop drilling because their neighbours would not.

The worst flood came in the Great Depression. In October 1930 a veteran wildcatter, Columbus “Dad” Joiner, brought in the Daisy Bradford No. 3 in Rusk County, on land the major companies’ geologists had written off, and discovered the East Texas field, the largest known in the world at the time. Joiner was soon in legal trouble, and in November 1930 H. L. Hunt bought the well and 5,580 acres from him for $1.34 million. Thousands of wells followed. Under the rule of capture, oil belonged to whoever pumped it first, so every owner raced to drain the shared reservoir before the neighbours did. Crude that sold for about $1.30 a barrel in early 1930 was fetching 13 cents by mid-1931, and in parts of East Texas as little as 3 cents.

The Texas Railroad Commission, a regulator originally created to police railway rates, tried to limit how much each well could produce, a system called prorationing. In July 1931 a federal court ruled that it had no power to do so. In August 1931 the governor, Ross Sterling, declared martial law in the East Texas field and sent in the National Guard to shut every well. Output limits were later written into law, and a 1935 federal statute helped the commission enforce them. For the next four decades a state regulator in Austin set the effective ceiling on American oil production. Commentators have called it the world’s first oil cartel.

The Seven Sisters and the Birth of OPEC

Outside the United States and the Soviet Union, the oil of the mid-twentieth century was dominated by seven Western companies, later nicknamed the Seven Sisters, which held the concessions in Iran, Iraq, Saudi Arabia, Kuwait and Venezuela and set the posted prices on which the host governments’ income depended. In 1959 the companies cut those posted prices by about 10% without consulting the producing countries. The following year the producers answered. On 14 September 1960, at a conference in Baghdad, Iran, Iraq, Kuwait, Saudi Arabia and Venezuela founded the Organization of the Petroleum Exporting Countries.

For its first decade OPEC had little visible power. It grew quietly as more members joined and as consumption in the West soared. By 1973 OPEC supplied 56% of the world’s oil, up from 47% in 1965, and by the early 1970s its members had taken control of their own fields through nationalisation. The balance of power had shifted from the companies that sold the oil to the countries that owned it. It needed only a trigger to show it.

1973: The First Oil Shock

The trigger came in October 1973, when Egypt and Syria attacked Israel in the Yom Kippur War. The Arab members of OPEC declared an embargo on the United States, the Netherlands and other countries that supported Israel, and announced rolling production cuts, initially 5% a month. The price of oil roughly quadrupled, from about $3 a barrel to nearly $12 by the time the embargo ended in March 1974. Motorists queued for hours at filling stations, petrol was rationed, and the industrial world slid into a recession that lasted into 1975. Consuming countries responded by creating the International Energy Agency in 1974, and the United States set up its Strategic Petroleum Reserve in 1975.

The embargo taught markets a lesson they have never forgotten. In oil, politics is not background noise. A decision taken in a single capital can change the price of the most important commodity on earth overnight, and no amount of chart reading will anticipate it.

1979: Revolution and the Second Shock

Six years later it happened again. The Iranian Revolution of 1979 took the output of the world’s second-largest exporter off the market, and the war between Iran and Iraq that began in 1980 kept supply in doubt. Prices climbed to records. This time the damage fed straight into the wider economy: inflation soared, the US Federal Reserve raised interest rates to punishing levels to break it, and the world entered another recession.

High prices also did what high prices always do. They cut demand, as consumers and industry used less oil, and they called out new supply from places that had been too expensive to develop, from Alaska to the North Sea. After 1980, oil began a long decline that lasted, with interruptions, for twenty years.

1986: The Saudis Open the Taps

As prices sagged in the early 1980s, OPEC tried to hold them up by cutting output, and Saudi Arabia carried most of the burden. According to the US Energy Information Administration, Saudi production fell from more than 10 million barrels a day in 1980 and 1981 to just 2.3 million by August 1985, while other members kept pumping above their quotas. In late 1985 Saudi Arabia gave up. It raised output sharply and began selling on terms that guaranteed its buyers a profit whatever the price, a system called netback pricing. Prices fell from about $30 a barrel to below $10 within months, and average world prices fell by more than half in 1986.

The crash devastated oil producers from Texas to the Soviet Union, hit the Texas banks that had lent to them, and contributed to the savings and loan crisis in the United States. It also set a pattern that has repeated ever since. When Saudi Arabia decides that defending market share matters more than defending the price, it can flood the market, and the price has no floor until higher-cost producers are forced out.

The Paper Barrel

The 1986 collapse also finished off the era of official prices set by producers. Oil became a market price, set by trading, and the instruments for that trading arrived at the same time. On 30 March 1983 the New York Mercantile Exchange listed futures on West Texas Intermediate crude, deliverable at Cushing, Oklahoma, in contracts of 1,000 barrels. In London, futures on North Sea Brent followed in 1988, and Brent became the reference price for most of the oil traded in the world.

The traders who thrived in the new market were a different breed from the drillers and refiners. The most famous of the early generation was Marc Rich, who had helped build the spot market in crude in the 1970s, buying and selling cargoes outside the long-term contracts of the major companies. He was indicted in the United States in 1983, lived abroad for the rest of his life, and was pardoned by President Bill Clinton in January 2001, a controversy of its own. The paper market he helped create soon traded far more oil than ever moved in tankers, and it gave the price of oil a new driver: the positions and fears of financial traders.

1990–1991: The War Trade

On 2 August 1990 Iraq invaded Kuwait. With two major producers’ output in doubt and fear that Saudi fields could be next, Brent rose from about $15 a barrel at the end of July to $41.45 in October. Then, as the US-led coalition prepared to attack, the market did something that confounded anyone who had traded only the headlines. When the air war began in January 1991, the price did not rise. Brent futures fell by $10.50 in a single day, to $19.70, the largest one-day fall in the contract’s history at the time. The war everyone feared had been priced in for months, and once it began, with Saudi supplies safe, the fear premium vanished overnight.

Traders call it buying the rumour and selling the news. The Gulf War is the textbook case, and it is a reminder that by the time a crisis is on the front page, much of it is already in the price.

1998: The Glut Nobody Wanted

The late 1990s delivered the opposite shock. The Asian financial crisis of 1997 and 1998 crushed demand across the fastest-growing region in the world just as supply was rising, and Brent fell below $11 a barrel in late 1998, one of the lowest prices of the modern era. Producers cut investment, analysts competed to forecast how much lower it could go, and the industry settled into gloom.

Within two years Brent was back above $30. OPEC and its allies cut output, Asia recovered, and the investment cuts of the glut years left supply short just as demand began to climb. It was the oil cycle in its purest form: the low prices that seemed permanent had destroyed the supply that would have kept them low.

2003–2008: The Supercycle and $147

The next decade brought the greatest bull market in oil’s history. China’s industrial boom added demand year after year, spare capacity shrank, and theories of peak oil, the idea that world production was about to begin an irreversible decline, moved from the fringe into the mainstream. Money poured into commodities as an asset class. On 11 July 2008 WTI touched $147.27 a barrel, its all-time high.

It fell almost as fast as it had risen. The financial crisis crushed demand, and by December 2008 WTI was below $35 and Brent below $40, a fall of more than 70% in less than six months. The era also produced one of the most famous paydays in trading. Andrew Hall, who ran Citigroup’s Phibro commodities unit and had profited from the long rise in oil, was reported to be owed around $100 million for 2008, and after Citigroup’s government bailout the payment became a political storm in 2009.

Prices recovered quickly. From 2011 to mid-2014 Brent traded in a stable range around $100 to $115, the longest stretch above $100 on record, and the industry again came to believe that high prices were the new normal.

2014–2016: Shale and the Price War

High prices had called out a new source of supply, as they always do. Horizontal drilling and hydraulic fracturing unlocked oil trapped in tight rock formations in Texas and North Dakota, and US production rose from around 5 million barrels a day in 2008 to more than 9 million by 2014. In November 2014 OPEC, led by Saudi Arabia, decided not to cut output to defend the price, choosing instead to fight for market share and squeeze the higher-cost shale producers. It was 1986 again. Brent fell from above $110 in mid-2014 to near $27 in January 2016.

Shale bent but did not break. Producers cut costs, the survivors became more efficient, and in late 2016 OPEC formed a wider alliance with Russia and other exporters, known as OPEC+, to manage supply together. The supply manager had changed shape again.

20 April 2020: Oil Goes Negative

Then came the price that every textbook said could not happen. In March 2020 the OPEC+ alliance broke down and Saudi Arabia and Russia launched a price war just as COVID-19 lockdowns shut down travel across the world. Demand collapsed by more than anyone had seen. In April OPEC+ agreed a record cut of 9.7 million barrels a day, but it was too late for the oil already flowing into storage, and tanks at Cushing, the delivery point for WTI, were filling fast.

The May 2020 WTI contract was due to expire on 21 April. Anyone still holding it at expiry would have to take delivery of 1,000 barrels per contract at Cushing, and there was almost nowhere left to put them. Holders who could not take delivery, including funds and retail products that were never meant to, had to sell to whoever would take the contracts off their hands. On Monday 20 April the price fell $55.90 in a single session, traded as low as about -$40.32, and settled at -$37.63 a barrel. Sellers were paying buyers to take their oil. The exchange had confirmed about two weeks earlier that its systems could handle negative prices.

It was mainly a futures event. The June WTI contract closed above $20 the same day, and Brent for June delivery settled at $19.33 the next day. The Energy Information Administration concluded that the negative price was mainly confined to the financial market, although some US physical crude prices also went below zero. The damage was concentrated among traders who did not understand what they owned. In China, retail investors in the Bank of China’s Crude Oil Treasure product, which was linked to the May WTI contract, suffered heavy losses, and brokers around the world, including Interactive Brokers, took losses on accounts that could not cover them.

2022: War Returns

Less than two years later the same market was screaming the other way. Demand recovered faster than supply after the pandemic, and on 24 February 2022 Russia, one of the world’s largest oil exporters, invaded Ukraine. Western sanctions and self-imposed bans on Russian oil threw trade flows into chaos. On 8 March 2022 WTI closed at $123.70 a barrel. In less than two years the front-month WTI contract had travelled from -$37.63 to $123.70, a range few markets have ever covered in so short a time.

2026: The Strait of Hormuz

The Strait of Hormuz, the narrow channel between Iran and Oman at the mouth of the Persian Gulf, carries roughly a fifth of the world’s oil in peacetime, and for fifty years it had been the market’s worst-case scenario. In 2026 it happened. Brent averaged about $65 a barrel in January. In late February the United States and Israel went to war with Iran. By 3 March Brent was near $84, its highest since July 2024, and as Iran’s Revolutionary Guards threatened to set ablaze any ship attempting the passage, commercial traffic through the strait all but stopped. Insurers moved to withdraw war-risk cover, and Washington offered insurance and naval escorts to try to keep tankers moving.

By any measure it was one of the largest supply disruptions the modern market had seen. In April the US Energy Information Administration estimated that production shut-ins linked to the war would reach 9.1 million barrels a day that month. Brent futures rose above $110 in May, and physical prices spiked further: at one point dated Brent, the benchmark for cargoes loading in the North Sea, traded above $140, its highest since 2008. OPEC itself cracked under the strain. In April the United Arab Emirates announced that it would leave the organisation after nearly six decades.

In June the United States and Iran signed a memorandum of understanding to end the fighting, and prices eased. But the strait did not reopen. Through the summer Tehran set conditions for reopening it, Iran and Oman negotiated over a temporary shipping route, and attacks on shipping flared up again in September. In August the EIA said it did not expect Middle East production to return to near pre-war levels until early 2027. On 8 September Brent rose to $99.05, and Goldman Sachs warned that it could exceed $120 in 2027 if Gulf output stayed 4 million barrels a day below pre-war levels. In late September, with Brent trading around $100, Saudi Arabia was preparing to restart exports through its East-West pipeline to bypass the strait altogether.

How the Oil Market Works Today

Two benchmarks dominate. Brent, based on North Sea crude and traded as futures on ICE in London, is the reference price for most of the oil traded in the world. West Texas Intermediate, traded on NYMEX in New York and delivered at Cushing, Oklahoma, is the North American benchmark. Both are light, sweet crudes and usually move together, with Brent typically a few dollars higher. Physical cargoes are priced off assessments such as dated Brent, which can move far away from the futures when physical supply is tight, as it did in 2026.

Oil futures trade almost around the clock, from Sunday evening to Friday afternoon New York time, with a short daily break. A standard WTI contract covers 1,000 barrels, and since 2021 the CME has offered a micro contract of 100 barrels. The market’s rhythm is set by a few scheduled events: the American Petroleum Institute’s inventory estimate on Tuesday evenings, the Energy Information Administration’s official weekly figures on Wednesday mornings, and the meetings of OPEC+, whose production decisions can move the price more than any chart pattern. Unscheduled events, from drone strikes on refineries to shipping attacks in a strait, move it more than all of them.

Two terms matter for anyone holding oil for more than a day. When later-dated contracts cost more than the front month, the market is in contango, usually a sign of ample supply, and anyone rolling a long position forward pays to do it. When near-dated contracts cost more, the market is in backwardation, usually a sign of tight supply, as in 2022 and 2026. The shape of that curve tells you as much about the market as the headline price.

How to Trade Oil

Most retail traders never touch a barrel or a futures contract. They trade oil through CFDs, usually listed as USOIL or WTI and UKOIL or Brent, which track the futures and let you trade small sizes. Futures on NYMEX and ICE give direct, regulated exposure, and the micro WTI contract brought them within reach of smaller accounts. Exchange-traded funds that hold oil futures are a third route, but they must roll their contracts forward each month, which costs money in contango and can leave their returns far behind the price of oil you see quoted.

Whatever the route, the same four risks deserve respect. Wednesday’s inventory report can move the price several per cent in minutes. OPEC+ decisions and geopolitical news often land at weekends, when the market is closed and a stop-loss cannot protect you from the gap. Futures-based products carry expiry and roll risk, the lesson of April 2020. And oil’s range is simply larger than most markets: it has traded at $147 and at -$37 within one career. Size for that range, not for the average day. Our guides to position sizing and trading sessions cover the mechanics.

Ten Lessons From a Century and a Half of Oil

1. The cure for high prices is high prices. 1861, 1986 and 2014 all began with a boom that called out too much supply. Scarcity stories have short lives. Method.
2. Find the supply manager. Standard Oil, the Texas Railroad Commission, OPEC, Saudi Arabia, OPEC+: someone is always trying to balance the market. Trade their behaviour, and watch for the day they lose control. Method.
3. Politics is a fundamental. 1973, 1979, 1990, 2022 and 2026 were decided in capitals, not on charts. Size for the headline you cannot predict. Money.
4. By the time it is news, it is priced. Brent fell $10.50 on the day the Gulf War began. The crowd buys the rumour and sells the event. Mind.
5. Know what you own. On 20 April 2020 traders who were right about oil were ruined by the contract they held. Money.
6. Size for the range, not the average day. $147.27 and -$37.63 within twelve years. Whatever you think the worst case is, oil has been further. Money.
7. Low prices plant the next boom. The glut of 1998 cut the investment whose absence drove the supercycle. The cycle turns on the despair at the bottom. Mind.
8. Physical beats paper at expiry. Every contract ends at a real tank in a real place. When storage runs out, the chart stops mattering. Method.
9. Weekends and chokepoints gap. OPEC+ decisions, strikes and shipping attacks often land while the market is shut. A stop cannot fill inside a gap. Money.
10. Certainty is the warning. Peak oil in 2008, $100 as the new normal in 2014: the consensus is most dangerous when it is most confident. Mind.

Frequently Asked Questions

When did the oil industry start?

People used oil from natural seeps for centuries, and there were earlier wells in several countries, but the modern industry is usually dated to 27 August 1859, when Edwin Drake’s well near Titusville, Pennsylvania reached 69.5 feet and struck oil. It set off the first oil rush and, within two years, the first oil glut: the price fell from $20 a barrel in 1859 to 49 cents in 1861.

What was Standard Oil?

Standard Oil was the company John D. Rockefeller and his partners founded in Ohio on 10 January 1870. Through cost-cutting, acquisitions and secret railroad rebates it came to control, by most accounts, about 90% of American oil refining. On 15 May 1911 the US Supreme Court ordered it broken into 34 companies, among them the ancestors of ExxonMobil and Chevron. Our profile of Standard Oil tells the full story.

What caused the 1973 oil crisis?

In October 1973, during the Yom Kippur War, the Arab members of OPEC placed an embargo on the United States, the Netherlands and other supporters of Israel, and cut production month by month. The price of oil roughly quadrupled, from about $3 a barrel to nearly $12 by the time the embargo ended in March 1974, causing fuel shortages and a recession across the industrial world.

Why did oil go negative in 2020?

On 20 April 2020 the May WTI futures contract, due to expire the next day, settled at -$37.63 a barrel. Pandemic lockdowns had crushed demand, storage at the Cushing, Oklahoma delivery point was filling, and holders who could not take physical delivery had to pay others to take their contracts. Later contracts and Brent stayed positive, and the Energy Information Administration found the event was mainly confined to the financial market, although some US physical crude prices also briefly went below zero.

What is the highest oil price ever?

WTI’s record is $147.27 a barrel, touched on 11 July 2008. In 2026, during the Hormuz crisis, Brent futures rose above $110 and dated Brent, a physical benchmark, briefly traded above $140. Adjusted for inflation, the peaks of 1980 and 2008 remain among the highest in the market’s history.

What is the difference between Brent and WTI?

Brent, based on North Sea crude and traded on ICE, is the main global benchmark. West Texas Intermediate, traded on NYMEX and delivered at Cushing, Oklahoma, is the North American benchmark. Both are light, sweet crudes that usually move together, with Brent typically a few dollars higher. The gap between them is the Brent-WTI spread.

Why does the Strait of Hormuz matter?

The Strait of Hormuz, between Iran and Oman, carries roughly a fifth of the world’s oil in peacetime, and there are few alternative routes for Gulf exports. When the United States and Israel went to war with Iran in 2026, traffic through the strait all but stopped, Brent rose above $110, and Saudi Arabia turned to its East-West pipeline to bypass the strait.

Did Sheikh Yamani say the Stone Age did not end for lack of stones?

He did, but he was not the first. The former Saudi oil minister Ahmed Zaki Yamani used the line in 2000, telling OPEC that the Stone Age “came to an end not for a lack of stones” and that the oil age would end, “but not for a lack of oil”. The research of Quote Investigator traces the earliest close version to July 1999, when The Economist quoted Don Huberts, then head of Shell’s hydrogen business.

How can I trade oil?

Most retail traders use CFDs on WTI and Brent, often listed as USOIL and UKOIL, or futures on NYMEX and ICE, including the smaller micro WTI contract. Brokers such as XM and Exness offer both benchmarks alongside forex, gold and indices. Watch Wednesday’s inventory data, be careful holding positions over weekends and through OPEC+ meetings, and never risk more than 1% of your capital on a single trade. (Some of these are partner links; they cost you nothing and help keep our guides free.)

Sources and Further Reading