Energy Commodities: Production Figures of Crude Oil - dummies

Energy Commodities: Production Figures of Crude Oil

By Amine Bouchentouf

Identifying the countries with large crude oil reserves is important, but it’s only a starting point as you begin investing in commodities. To determine which countries are exploiting these reserves adequately, you should look at another important metric: actual production. Having large reserves is meaningless if a country isn’t tapping those reserves to produce oil.

Rank Country Daily Production (Million Barrels)
1 Saudi Arabia 10.8
2 Russia 9.8
3 United States 8.5
4 Iran 4.2
5 China 4.0
6 Canada 3.4
7 Mexico 3.2
8 United Arab Emirates 3.0
9 Kuwait 2.8
10 Venezuela 2.6

Source: United States Department of Energy

A number of factors influence how much crude a country is able to pump out of the ground daily, including geopolitical stability and the application of technologically advanced crude-recovery techniques. Also remember that daily production may vary throughout the year because of disruptions resulting either from geopolitical events such as embargos, sanctions, and sabotage that put a stop to daily production or from other external factors, like weather.

For example, consider Hurricane Katrina and its devastating effect on U.S. oil supply in summer 2005, as well as the BP Gulf oil spill in 2010.

You need to keep a close eye on global daily supply because any disruption in the production supply chain can have a strong impact on the current price of crude oil. Because there’s a tight supply-and-demand equation, any disruption in supply can send prices for crude skyrocketing.

Traders in the commodity exchanges follow the daily crude oil production numbers closely. Benchmark crude oil contracts such as both the West Texas Intermediate (WTI), traded on the Chicago Mercantile Exchange (CME), and the North Sea Brent, traded on the Intercontinental Exchange (ICE) in London, are affected by supply numbers. As a result, the market closely watches any geopolitical event or natural disaster that may reduce production.

If you’re an active oil trader with a futures account, following these daily production numbers — which are available through the Energy Information Administration (EIA) website — is crucial. The futures markets are particularly sensitive to daily crude oil production numbers, and any event that takes crude off the market can have a sudden impact on crude futures contracts.

If you’re a long-term investor in the markets, monitoring this number is also important because production figures can have an effect on the general stock market performance as well. For example, if rebels seize a pipeline in Nigeria and 300,000 barrels of Nigerian crude are taken off the market, this will result in higher crude prices, which will have an impact on U.S. stocks (they generally fall).

Thus, your stock portfolio holdings may be at risk because of daily crude oil production disruptions. Therefore, monitoring this statistic regularly is important for both short-term traders and long-term investors.