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Tuesday, April 7, 2009

What is a Barrel of Oil?

By Terry Stanfield

If you are interested in oil and gas investing it is important to understand what a barrel of oil is and how it can affect your investments.

Oil and petroleum is measured by the barrel in the United States. This measure refers to crude oil and other petroleum products. In gas investments, oil will be referred to as barrels of oil when the talk about the price of oil going up. A barrel of crude oil is 42 gallons. For global reporting purposes the term barrel is used interchangeably. In Europe, they might even convert the production of oil to tons.

In the late 1800s an oil barrel was a wooden barrel. Today the barrels are steel drums. These barrels are used to transport oil on big tankers. However, it is very important to understand that the barrels aren't used so much anymore for transporting crude oil. Most petroleum is transported by means of oil tankers and pipelines today. A barrel of oil is the universal term for the measurement for oil investments.

The measurement of a barrel of oil came from some oil fields in Pennsylvania in the early 1860s. At this time there was not a standard container for oil and the containers consisted of anything they could put it in. However, because of oil and gas investing and the prices of oil, distrust between buyers began to rise. This created a standard oil barrel to be used.

Oil investments might also use the term "barrels per day". This term is a measurement for actual refinery throughput rather than the actual capacity. The "barrels per day" is actually computed in one way. The number of refined barrels of oil processed by the plant will be divided by the number of days that the refinery has been in operation. "Barrels per day" is also used in terms of consumption. This might be referred to as millions of barrels per day or thousands.

Gas investments also should note that barrels of oil do not make that much gasoline to be used for consumption of motor vehicles. Petroleum is used to make almost everything people use like tires for their car, plastics, ink for printers, clothing, and more. One 42 gallon crude barrel of oil only makes less than half of that in gasoline for a car, which is approximately 19.5 gallons of gas.

Oil and gas investing requires a little knowledge about barrels of oil. It is important to know that crude oil must be taken to a refinery and refined into gasoline. It cannot just be poured into a vehicle. A barrel of oil is only a term for measurement today for investment purposes. This method of transporting oil is not the standard. Although it is still used, only a small percentage of transporting oil happens this way today. - 23208

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