One of the most intriguing questions for those observing the financial market is: why is oil still measured in barrels? In practice, nobody physically buys a wooden barrel; the product isn't even transported that way nowadays. But to understand the practice, we looked into its origins.
What are barrels of oil?
To understand the origin of this measure, we need to go back in time, specifically to the first oil fields in Pennsylvania, USA, in the 1860s. In the early days of exploration, the extracted oil did not have a dedicated container. The product was stored in any available vessel – from ceramic jars to crates – which made commercialization a logistical nightmare. As each container was a different size, it was almost impossible to accurately determine the quantity bought or sold.
With the rapid growth of industry in the 19th century, explorers needed to standardize transportation to move oil across the country. The inspiration came from another thriving industry of the time: whiskey. Distillers transported the golden liquid in standard-sized wooden barrels of 40 gallons.
Instead of reinventing the wheel, oil producers adopted the same container. However, they made a technical adjustment: they created the 40-gallon barrel, but added 2 extra gallons to compensate for potential spills, leaks, or evaporation during the long, bumpy wagon journeys. This change was revolutionary, allowing buyers to know exactly the volume purchased, something fundamental to the birth of the capital market focused on the sector.
Currently, pumping crude oil into individual wooden containers would be inefficient and an economic disaster. Oil is transported via pipelines or pumped directly into giant tankers and cargo ships. However, the concept of the barrel has remained as a unit of account.
But why is the barrel abbreviation “bbl”? There’s a persistent legend that the term stands for “Blue Barrel.” The story goes that the Standard Oil Company, owned by magnate John D. Rockefeller, painted its barrels blue to ensure customers knew they were receiving the full 42-gallon volume. While this version is charming, the abbreviation “bbl” appeared in documents long before 1859, the date that marks the beginning of the modern oil industry. Its exact origins remain unknown, but the term has become the global standard.
Why is the price quoted in dollars?
Most countries use the dollar to buy oil, even if they are not the US buying or selling. This is because, historically, Americans have been the world's largest producers and exporters (since the Rockefeller era).
In the 70s, after the oil crisis, Arab countries began to make a lot of money and decided to invest this profit in the US, as it was the safest market and easier place to move large sums of money. It wasn't a secret pact, it was a business choice: the dollar offers legal security and stability that other currencies don't have.
This gives the US a huge advantage, as the whole world needs to have dollars on hand to buy energy, which keeps the currency strong. Today, although China has a lot of weight and countries like Russia try to move away from the dollar because of wars and sanctions, the American currency continues to be the rule of the game. The end of this dominance is still a long way off.
What do we do with the oil?
Crude oil, in its natural state, has little immediate use. It is in the refining process that it is broken down into a series of essential products. The refinery functions like a large chemical kitchen that separates the components of the oil according to their boiling points. Although gasoline is the most famous product, it represents less than half of what comes out of a barrel of refined oil.
PetrolGasoline accounts for approximately 20 gallons of a 42-gallon barrel, or about 45% of the total volume. Its primary function is to move the world, serving as an energy source for passenger vehicles. In blending plants, pure gasoline is combined with ethanol and specific additives, resulting in different performance categories, such as Regular, Intermediate, and Premium. Due to the complexity of the additives required by different markets, refineries often do not fully process the final product, sending it to distribution centers that finalize the "recipe" according to local needs.
Diesel and Heating Oil: Next, at around 12 gallons (25% of a barrel), we have ultra-low sulfur diesel (ULSD) and heating oil. Since 2006, strict environmental guidelines have required diesel to be converted to the ULSD version to reduce pollutant emissions. This fuel is the backbone of global logistics, powering trucks, trains, and heavy machinery. Interestingly, heating oil, vital for keeping homes warm in cold regions like the northeastern US, has an almost identical chemical structure to diesel, which causes their prices to move side-by-side in the market.
Kerosene and Aviation FuelKerosene is a light distillate that makes up about 4 gallons (9%) of a barrel. Historically used in lamps and stoves, today its more refined variant fuels the skies. Jet fuel is essential for modern jet engines, both in commercial and military aviation. Without this specific component derived from refining, the global connectivity we have today would be impossible.
Hydrocarbons, Liquid Gas and Residual FuelApproximately 2 gallons from each barrel are converted into hydrocarbon liquids. This includes ethane, propane, and butane. These gases are the basis for the creation of plastics, synthetic rubber, and even household fuels. What remains after this fine refining is residual fuel (about 1 gallon). Because it is denser and "dirtier," this residue is used in large-scale thermal power plants or as fuel for the gigantic merchant ships that cross the oceans.
Other productsThe last 13% of the barrel comprises a vast section of byproducts that shape our infrastructure. Here we find the asphalt that paves our roads, lubricants for engines, paraffin for candles, and naphtha, a fundamental base for the petrochemical industry. In total, the remaining approximately 23 liters of this "other" fraction are present in an infinite range of applications, from the coating of electrical wires to components of electronic devices.
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