The Complex Landscape of the Oil Market
Energy investors should know that oil supply and demand is constantly walking a tightrope. In fact, according to the U.S. Energy Information Administration (EIA), the world consumed more oil than it produced in 2011. Oil production totaled 87.1 million barrels per day, which was slightly less than consumption, which totaled 87.4 million barrels per day.
The world lives on the margin, putting great faith that oil in stored reserves, in pipelines, and on ships and rail cars will arrive for just-in-time delivery. Understanding this margin and the factors that sway supply and demand is key to making successful oil investments.
It’s amazing how little people know about the energy source that drives their world. Some people think Saudi Arabia provides most of the world’s oil. Others think presidents or prime ministers can simply increase production at will. Of course, neither of these things is true.
For all the talk of “oil from the Middle East,” only 5 of the world’s top 15 producers are located there. It only seems like these countries produce so much because, until recently, they consumed much less than their European and North American counterparts. Only two countries from the Middle East rank on the list of top oil consumers, so more of their oil is available for export.
How much a country consumes directly affects whether it’s an importer or exporter. Norway, for example, is the world’s 14th largest oil producer, but because it consumes so little of what it produces, it’s the 7th largest exporter.
When investing in oil, you need to keep an eye on a lot of moving parts. The most vital ones are supply/demand, country reserves, and import/export figures. Being armed with critical oil market data gives you an edge when it’s time to invest.