The International Energy Agency (IEA) lowered its forecast for average oil demand in 2008 on Tuesday morning, which led to a drop in prices of more than 2% . However, oil prices at or close to record levels continue to push up average gasoline prices. (The last record close of $138.54 per barrel was hit on June 6th.) The national average crossed above $4 per gallon for the first time on Sunday, and up to $4.043 per gallon on Tuesday, a 31.2% increase over a year ago, per the AAA Daily Fuel Gauge Report.
All of this focus on oil made me notice a short story in Time magazine regarding the history of the oil barrel. The article, in the June 16th issue, stated that the "barrel" concept derives from Pennsylvania oilmen, who in 1859, shipped oil using old whiskey barrels. The first wells drilled in Pennsylvania were spurred on by the shortage of whale blubber for lamp fuel, and oil was sopped up with rags and wrung out into the barrels as a substitute.
A point in the Time article that resonated with me was that before the Model T was introduced by Ford in 1908, overproduction of oil caused prices to drop to such an extent that the wooden whiskey barrel was worth twice more than its contents. This situation is hard to envision when oil prices have increased almost 40% this year alone, and they are up over 100% in the last 12 months.
Today most of our oil is transported via tanker and pipelines, and stored in tanks, but the standardized barrel size of 42 gallons or 160 L is maintained as the unit of measure for trading and selling.
The energy markets will watch Wednesday's inventory report at 10:30aET closely for any signs of a shortage in supply.