If you are a beginner to investing, you might not have given the oil industry a second thought until crude oil prices hit a record low last year. You might have several questions as to why there have been a lot of fluctuations in oil prices in the last 15 years and why they do not correspond to the economic forces like inflation and demand & supply.
The biggest reason for the ambiguity of the industry is that investors see oil only as an investment and the average Joe sees it as a commodity. In reality, oil is a bit of both, an investment just like stocks/ bonds and as well as a commodity like copper, iron, etc. You would also have to take into account the fact that most of the oil producing countries are located in the middle-east, notorious for its political turmoil. Therefore, the oil industry's prices are based not only on the economic forces but also on political factors from time to time.
To help budding and experienced investors make sense of the current state of the oil industry, we created a nice infographic that illustrates some of the facts about the oil sector to enlighten you on where it is now and where it is going.
Here are some of the facts that transpired from our research:
1. The global oil production as shown in the infographic has grown by 865 million barrels from 2014 to 2015. If the falling prices were taken into account, you would have expected a fall in the oil production. It is natural to expect so since falling prices would decrease the oil producing countries' profitability and it would make sense for them to reduce production and increase oil prices in the market. But, the OPEC, the Organization of Petroleum Exporting Countries chose not to decrease their production, in spite of the falling prices. This is the reason you see an actual production of 95.62 million barrel per day oil production on average during the year 2015 compared to 93.30 million barrels per day in 2014.
2. The top oil producing countries in the world right now are United States, Saudi Arabia, Russia, China and Canada. In this list, it is important to note that while Canada has had huge reserves for a long time, they had not ramped up their oil production until recent years.
3. The economy of the OPEC countries depends upon their oil production and they depend upon its exports. In fact, even when only a handful of countries export their oil, oil currently forms the highest exported product globally. It is estimated that 7.8% of all global exports is crude oil. The value of global crude oil exports in 2014 was estimated to be $1.451 trillion. Even when the production and exports rose in 2015, it was significantly lower in value because of the huge fall in oil prices.
4. Huge oil production does not necessarily convert huge oil exports. For instance, most of United States' oil production is consumed domestically. Therefore, in spite of being the largest oil producer in the world, United States does not feature in the list of the biggest oil exporters. The biggest oil exporting countries are Saudi Arabia, Russia, United Arab Emirates, Canada and Iraq in order.
5. The biggest oil importing countries are Canada, Saudi Arabia, Venezuela, Mexico and Colombia. Global oil imports reached 34,020,081 barrels during 2014 which is average of 93,206 barrels of crude oil per day.
6. Oil is the primary energy producer of the world and more than 80% of every country's energy needs are satiated by oil. Therefore, there are very few nations that do not need to import crude oil. These nations that import less than 100 barrels of crude oil per day are Hong Kong, North Korea, Zimbabwe, Ethiopia and Bosnia & Herzegovina.
7. The countries with the highest oil reserves are Venezuela with 298 billion barrels, Saudi Arabia with 268 billion barrels, Canada with 173 billion barrels, Iran with 157 billion barrels and Iraq with 140 billion barrels. It has to be noted that they are only estimates and even then, it does not mean that all these reserves are extractable in the near future. Also, it is expensive to extract oil from certain countries like Canada while it is cheap and more economical to extract oil from certain countries like Saudi Arabia.
Considering people's dependency on oil, it is necessary for everyone around the world to understand the economics behind the oil industry. However, the landscape is beginning to change with consumers demanding cleaner and more sustainable modes of transportation. There is no telling where the oil industry will be going within the next 5, 10 or 15 years, but we can say that the future has never been as uncertain as it is now for the industry.
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Please include attribution to SavvyBeaver.ca with this graphic.