Sorry to revive an old thread, but to clear this up a bit more: in a TERRIFIC 1982 retrospective on the film by K. George Godwin, Doreen Small said that the stuff was “a kind of sticky, oily hair stuff” found at a “kind of oil well over on Robertson Avenue.” The article is available at http://www.cageyfilms.com/links/eraserhead/the-making-of-eraserhead/
and is well worth a read. Although it is extremely long, it contains a bunch of detail on the film's production that I have never seen recounted anywhere else. The site also has transcripts of each of the interviews done with the various participants, including four VERY long sessions with Lynch, which are a really interesting slice-of-life to see where everyone was circa 1981-82 (Lynch talks about doing Red Dragon
, and is clearly VERY uneasy about the subject matter).