Oil Production and Pricing: It’s All about Supply and Demand

Understanding which countries are the largest producers is part of the foundational knowledge you need to invest in oil. Everyone knows a bird in the hand is worth two in the bush. And that proverb applies to oil, too. Just because a country has oil doesn’t mean it can or will viably produce it. This table lists the countries that producer the most oil.

Top World Oil Producers
Country Daily Production (Millions of Barrels per Day)
Saudi Arabia 10.5
Russia 10.2
United States 9.7
China 4.3
Iran 4.3
Canada 3.4
Mexico 3.0
United Arab Emirates 2.8
Brazil 2.7
Nigeria 2.5

In total, the world produces about 87.1 million barrels of oil per day. The top ten production countries account for 60 percent of this output.

The supply of crude oil relative to demand is the basic factor that helps determine oil’s price. Because demand often outpaces supply, the world relies heavily on new oil being produced and brought to market. So any disruption — or even perceived disruption — can send crude oil prices soaring.

When Libya entered civil war in early 2011, crude oil prices surged from below $90 to more than $110 per barrel as its production plummeted from 1.8 million barrels per day to 500,000.

As you remember from freshman economics, price acts as a mechanism that helps balance supply and demand. When supply falls or demand rises, prices typically rise. So you must monitor these factors closely when investing in oil as commodity.

Because supply and demand have such a tenuous balance in the global oil market, you need to keep a close eye on production numbers. The EIA publishes up-to-date production numbers, short-term outlooks, and price forecasts on their Petroleum & Other Liquids page. Make sure to keep tabs on oil supply data whether you’re directly trading benchmark crude contracts or investing in oil stocks.

Where crude oil is produced affects global energy flows and, therefore, investment flows. With North America ramping up production of shale reserves, the United States is expected to become a net oil exporter in the next two decades. This will shift as much as 90 percent of Middle Eastern oil exports to Asia. Iraq will also rapidly increase oil production as it recovers from a decade-long occupation.

Iraq is expected to overtake Russia as the world’s second-largest exporter, as its weapon of mass destruction becomes oil production.

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