Did Signal Hill Oil Save the Country from Economic Collapse?

                What was the world like after World War I and the influenza pandemic? Time, not medicine, had lessened the deaths from influenza. There was no prevention and no treatment. Isolation, quarantine, good personal hygiene, and limits on public gatherings were used to control the spread…sound familiar?  But what were the effects of the disease economically?  Here is a look at the economic depression that struck soon after the war and the influenza pandemic ended.

               

We all have heard of the Great Depression that encompassed the world in the 1930s. A little talked about Depression brought economic collapse and massive job losses in the years following World War I and the influenza pandemic.  Those were the days when there was no government aid available to businesses and individuals, no Social Security or welfare. People had to fend for themselves.

               

According to today’s economists, the Depression lasted from January 1920 to July 1921, but there were signs of things to come months earlier.  In November 1919, panic conditions threw Wall Street into turmoil and interfered with the operation of the whole Federal Reserve System. Restless speculation forced “call money” up to 25 percent overnight. This “unnatural” demand for cash affected not only the business world; it affected all other parts of the economy. Farmers who wished to raise money on prospective crops found it more difficult to do so; small town merchants were inconvenienced in restocking their stores and builders were kept from purchasing their building supplies.  Unemployment rose sharply. Automobile production declined by 60% and total industrial production by 30%. Southern California, however, escaped the economic crisis because of a major discovery – oil.

                Gas emanations, seepages of oil and asphaltum deposits had long been known throughout Southern California.  Native Americans as well as mission fathers used these substances as roofing materials, natural lubricants and as liniments.  The first oil boom actually occurred in 1859 when it was found that petroleum could be used to make kerosene lamp oil, an inexpensive alternative to whale and coal oil in use at the time. With California gold production diminishing, oil speculation seized the minds of many still eager to make their fortune.  By 1865, sixty-five California oil companies had sprung into existence, though many never got further than just issuing stock certificates and pocketing investors’ money.  Those that did get around to drilling didn’t have enough capital to bore the wells very deep, and only a small amount of oil was obtained.  The modest quantity that was pumped was found to have little value. It wasn’t the same grade as eastern oil, which was perfect for kerosene production and at the time the only valuable use for petroleum.  Oil investors became discouraged and by 1884 there were only four California companies remaining that were actually producing oil.

 

One of Doheny's first wells

               In 1892, Edward Doheny was sitting on the porch of a Los Angeles hotel when he saw a decrepit wagon hauling chunks of a greasy, brown substance.  Curious as to what it was, the newly arrived miner ran after the wagon and asked the driver what he was hauling.  The driver replied “brea,” the Spanish word for pitch.  He told Doheny it came from a great hole oozing gobs of the sticky stuff in an area of the city called Westlake Park.  The driver was transporting it to a nearby ice factory where it would be used for fuel in place of coal.  A light bulb went off in Doheny’s head as he realized this was a new fuel which could become the new energy source of the nation.  The far seeing Doheny leased a three-lot parcel of land near the “great hole” at Patton and State streets in Los Angeles. It was swampland, bubbling with the tarry crude.  From this find, and convincing the Atchinson, Topeka and Santa Fe Railway to substitute oil for coal in their locomotives, the oil industry we know today came to be.

                It took a while for the use of oil to catch on, but as World War I got underway the need for petroleum increased. In 1916, oil wells began to dot Signal Hill. First it was Union Oil Company, then in 1917 St. Helen’s Petroleum Company and Kern River Oil Fields, Inc.  In 1920, Shell Oil Company arrived on the scene, leasing city owned land for oil drilling, but it wasn’t until 1921 that the speculation that Long Beach and Signal Hill was sitting on a vast oil reserve proved true.   On June 23, around 5 p.m. Shell Oil Company struck a huge deposit of oil at its well at Temple and Hill Street.

Oil - Signal Hill

                Oil fever quickly spread.  Sandberg Petroleum Company, with massive Signal Hill oil holdings, was swamped with people wanting to invest in their company.  Within 48 hours of the Shell discovery, Sandberg sold $112,000  ($1.6 million today) worth of stock.   Real estate promoters in the area on and surrounding Signal Hill could barely keep up with sales.  The City of Long Beach owned 36 acres of land between the Shell and Sandberg holdings and envisioned itself becoming the richest city in the world---a city that would end taxation.

                Shell well no. 2, Nesa, on the west slope of Signal Hill, struck oil at 12:45 a.m. on September 2.  It came in with such an explosion that everyone thought an earthquake had struck. People as far away as Los Angeles were awakened by the blast.  Other wells came in on October 26, November 17 and December 13.  On November 28, the city owned municipal oil well hit pay dirt, shooting two hundred barrels of fluid above the top of the derrick.  For many years afterwards this single well brought $360 ($5,200 today) a day into city coffers.

                Amid all of this oil, Signal Hill, which had been renowned for its scenic grandeur, productive soil and magnificent homes, was transformed.  Building restrictions, paved streets and walks and curbs were supplanted by oil leases, oil stocks, derricks and drills.  Palm trees and rose gardens were removed to make way for boilers and tool houses.   It was now dangerous living on the Hill, residents were regularly routed from their homes by blowouts from the oil wells.  Families escaped through the rain of greasy crude oil, leaving behind everything but the clothes they were wearing.  They would pile into their automobile, trying to drive to safety but finding it difficult to get through the oil that coated everything.  On returning home they found their once white home  now black, trees in their orchard destroyed, stripped of branches by the clinging oil, the contents of their homes worthless, and the building, soaked with highly flammable oil, a fire trap in which no one could safely live.  

  

Long Beach/Signal Hill oil field

              Because of oil, Long Beach and the rest of Southern California was able to escape the economic recession striking the rest of the United States in 1920.  Signal Hill was considered the greatest oil field in the United States.  A multitude of new industries associated with oil fields and interests were springing up.  Gas refineries, absorption plants, casing-head gasoline plants and several hundred miles of pipe lines were being built.  But all was not as rosy in the rest of America.  The United States was experiencing a severe, post-war recession due to industrial overproduction and elimination of defense related industries.  The result was widespread wage cuts and unemployment that reached 5.7 million in August 1921.  Thousands traveled west to Long Beach to take advantage of the jobs and other benefits accompanying the oil boom.  On October 7, 1921, Long Beach Mayor Charles Buffum spoke about the “propaganda” being spread through the east calling attention to the alleged employment advantages of Southern California.  "We can take care of the people we have here, but the continued invasion of the army of the unemployed will result most seriously for those who come", he said in an article in the Daily Telegram. "Keep the idle away from the City, Long Beach can take care of its own people, but the influx must stop."

                But the influx did not stop. In the decade 1920-1930, over 2,000,000 people moved into California, 72% of whom settled in Southern California.  The migration into Southern California in this decade was the largest internal migration in the history of the American people, according to author Carey McWilliams. In 1923, oil from Signal Hill alone caused ship traffic through the Panama Canal to double By 1924  (the same year Signal Hill decided to become its own city), oil surpassed agriculture as the leading industry in California.  In Southern California alone that year 230 million barrels of crude oil was pumped out of the ground. 

                The 1920s ---which brought Prohibition, rum runners, jazz, gambling ships and gangsters---also brought tremendous growth to the Southland. But speculation in the oil industry became rampant, with many swindlers out to make a quick buck.  More about this next time when I will tell of how this uncapped speculation pauperized at least 500,000 Southern Californians.