Every time the news is on we hear about the price of oil because this commodity is so entrenched in everyone’s lives, whether you drive or not. So many products come out of a barrel of oil or use a component refined from crude oil.
The barrel as a measurement tool has been around for hundreds of years as it was easy to transport and measure at the same time. However, barrels came in many different sizes. The word “barrel” comes from old French and you can imagine what they put in theirs – wine or vegetable oils!
For oil, the barrel was used to store crude during the 1860s as US producers recycled barrels from other commodities to store and transport their products. As above, the barrels used were of many different sizes and the producers were coming under pressure from buyers who distrusted the amount in each barrel and the pricing structure. So an agreement was made to use a 40 gallon whiskey barrel as the de facto standard. They agreed to add in an extra two gallons to ensure that the measurement was always in the buyers favour – a great way to encourage purchase! Within 10 years the standard had settled at 42 gallons. That is US gallons not Imperial (UK) gallons which would mean there are only 36 gallons in each barrel even though the same quantity of liquid is in the container!
So today the measurement of an oil barrel (bbl) is a constant 42 US gallons. Which means for those using metric terms: that’s around 156 litres. Knowing that, it is easy to measure the price of oil against other commodities. However …..
The development of transportation moved on and the barrel grew somewhat. In the US the standard for the actual, physical oil barrel has grown to 55 gallons or 210 litres which equals 200 kg. As most crude oil is transported through pipelines and large sea going tankers, the 55 gallon drum is not widely used to ship oil.
The industry has taken the term barrel and used it in other ways to measure flow of oil through a refinery: “barrels per day” for example. This measurement equals 0.0292 gallons per minute moving through the system, or 1.7 gallons in an hour. You may also see the measurement terms of “barrels per stream” or “barrels per calendar day”.
Other measurements you might see are Mbbl (thousands of barrels) or MMbbl (millions of barrels). So know you know, when you hear of the price of oil dropping, you can now start to understand the retail price of fuel taking into consideration costs for refining, logistics (multiple transportation events), taxes and profit margins through the chain. Remember, oil like many commodities are bought as “options” or “futures”, meaning the price is a contract to purchase at a later date for a fixed price. This is often forgotten when the media criticises oil companies over bowser pricing. The price of a barrel purchased at the exchange today bears very little relationship to the consumer price, however it is possible to extrapolate a rough view.
Image from petroleum support.com