The Economics of Oil
 Despite being transported via pipelines and tankers, the price and production of crude oil is always expressed in terms of the archaic and odd measurement of a barrel.
In ancient times liquids like olive oil and wine were kept in vessels such as amphora and when transported sealed with resin. The Gauls were the first to start making barrels and as result of their commercial contact with them, the Romans started using barrels from the 3rd century AD.
A barrel is a cylindrical container made in various sizes of vertical wooden staves and bound by metal hoops. Barrels are just one of the many sizes of casks including pins, firkins, kilderkins, puncheons, rundlets, tierces, pipes, butts, and tuns. Wooden casks are made by Coopers, who in the modern era still ply their ancient craft. A well constructed wooden cask bulges in the middle, this bulge makes it easier to handle and roll on its side allowing a change in direction with little friction.
For almost two thousand years, barrels were the most convenient and economical form of storing all kinds of bulk goods from nails to cement. Barrels gradually started losing relevance in the 20th century, after the introduction of pallet-based logistics and containerisation.
Prior to 1850 oil was derived mainly from plants and whaling. This was about to change dramatically with the discovery of oil but not without some skepticism.
Drill for oil ? You mean drill into the ground to try and find oil ? That is utter madness! This was the response of drillers who Edwin Drake tried to enlist for his project to explore for oil in 1859.
What followed was to change the world when oil started flowing fast and furious from the hastily drilled wells in the United States of America when any type of hollow container, whether a wash basin or beer barrel was used to collect, store and transport oil. Despite the sizes differing, these hollow vessels were all referred to as barrels. It was only by chance that the most common size container was the 40-US gallon, normally used to store and liquids and produce.
A Civil War was raging in the United States and because the Federal Government needed funds to take the war forward it was decided to impose a tax on crude oil. It was necessary to tie the tax to some standardised measurement - a $1 tax on each barrel of petroleum of 45 gallons or less, and an additional $1 tax on any container larger than that.
It was only during 1866 when more than two dozen leading oil producers agreed to sell crude oil "by the gallon only" rather than by the odd barrel or drum or any other measure. It was agreed by the producers that "an allowance of two gallons will be made on the gauge of each and every 40 gallons in favour of the buyer". This required a barrel holding 42 gallons. It was 10 years later when a Council of Producers accepted the 42- gallon standard as a unit of measure for crude oil which it has remained since.
Crude oil is sold in quantities of barrels expressed in US dollars and with gold are perhaps most tracked commodities in the world.
A barrel of crude oil or any other petroleum product (abbreviated bbl) is 42 US gallons, 39.9723 imp. gallons or 158.9873 liters.
Pieter Rautenbach |
