We always talk about oil being sold by the barrel.
So what does it mean when the barrel costs about three times more than the oil inside?
According to a website of Uline, a Chicago area shipping supply company, the cost of a 55-gallon, open-top, unlined steel drum is $99. Well, a barrel of oil this week was selling for only about $30.
Patrick DeHaan, a senior petroleum analyst for GasBuddy.com in Chicago, was the first to point out this interesting fact on Twitter this week when talking about the falling cost of West Texas crude.
“It is just interesting that oil is so cheap right now. It is multiple times cheaper than the container people associate with oil,” said DeHaan. “It gets people to thinking about how crazy low prices are. We are talking about 12-year lows.”
Now, before anyone gets too upset, DeHaan knows that most oil is not shipped in barrels anymore and that the standard for measuring a barrel of oil is 42 gallons.
(Oil originally was shipped in classic wood barrels at the birth of the oil industry, according to a 2005 Slate blog post. Edwin Drake, who drilled the first oil well in Titusville, Pa., in 1859, started using the containers that shipped whiskey, salt and corn when production grew too fast.
Spiking oil prices in the 1860s led to the development of the first pipeline and eventually crude was shipped in railroad tanker cars and steel tank barges, making the barrels obsolete. Although shipping by barrels is almost extinct, some companies still ship oil in 55-gallon drums, Slate said.)
But enough with that history lesson, because DeHaan said there’s another lesson to keep in mind.
He said the lower oil prices go, the tougher things will be when oil prices come back up — and they will come back up. Why? Because the longer oil prices stay low, it will force drillers to cancel deals and cut their labor force — some will even go out of business. That will make rebuilding even harder, DeHaan said.
So while motorists are enjoying the lowest gas prices they’ve seen since the 2008 recession — gas this week could be found for $1.45 a gallon in the Fort Worth area and statewide the average price was $1.72 — they need to think about the future. DeHaan said change is painful, it goes both ways.
“If oil prices suddenly went back up to $50, they could recall the workers or rip up the pink slips. But if it is a year from now, it is harder to get back together. Once you get out of oil, you ask yourself, ‘Why would I go back and have it happen to me again?’” DeHaan said.
Which brings us back to the barrel — or steel drum, in this case.
“Usually the jewelry inside a box costs more, or it’s supposed to,” he joked.