Top World Oil Producers, Exporters, Consumers, and Importers, 2006
(millions of barrels per day)
NOTE: OPEC members in italics.
1. Table includes all countries with total oil production exceeding 2 million barrels per day in 2006. Includes crude oil, natural gas liquids, condensate, refinery gain, and other liquids.
2. Includes all countries with net exports exceeding 1 million barrels per day in 2006.
3. Includes all countries that consumed more than 2 million barrels per day in 2006.
4. Includes all countries that imported more than 1 million barrels per day in 2006.
Source: Energy Information Administration (EIA)
The 15th top world oil producers for 2006 according to the International Energy Annual (2000-2004) and International Petroleum Monthly (2005-2006) were Saudi Arabia, Russia, United States, Iran, China, Mexico, Canada, United Arab Emirates, Venezuela, Norway, Kuwait, Nigeria, Brazil, Algeria and Iraq.There is a great deal of concentration in the world oil industry: just ten companies control 68 percent of the world's proven oil reserves. Nine of the ten biggest oil reserve holders are state-owned National Oil Companies (NOCs). Many of these were formerly private sector companies that were nationalized in the 1970s. Eight of the ten largest oil producers in the world are NOCs. The others are large integrated private sector energy companies.
World's Top 10 Crude Oil Producers
Source: Oil and Gas Journal, 2006
Since 1960 the world oil market has been significantly influenced by the Organization of Petroleum Exporting Countries (OPEC). The goal of OPEC is to stabilize oil prices
by adjusting their production levels and influencing the world's oil supply and demand balance. There are currently eleven members of OPEC, most of which are located in the Middle East and Africa. OPEC countries control close to 70 percent of the world's proven oil reserves and in 2005 accounted for about 41 percent of the world's supply of oil. Canada holds the second largest oil reserves in the world, with over 178 billion barrels of oil. Over the next decade, Canada's importance as a leading oil producer is expected to increase, as oil sands production is projected to triple. Other key non-OPEC producers include: Russia, the United States, Mexico, China and Norway.
World's Top 10 Crude Oil Reserve Holders
Source: Oil and Gas Journal, 2006
The price of oil is set in the global marketplace. Oil is traded widely all around the world and can move from one market to another easily by ship, pipeline or barge. Therefore, the market is worldwide and the supply/demand balance determines the price for crude oil all around the world. If there is a shortage of oil in one part of the
world, prices will rise in that market to attract supplies from other markets until supply and demand are in balance. If there is a surplus in a region and the price drops, buyers will soon be drawn to that market. This explains why crude oil prices are similar all around the world. Prices vary only to reflect the cost of transporting crude oil to that market and the quality differences between the various types of oil. The global nature of the market also explains why events anywhere in the world will affect oil prices in every market. In addition to all of the actual barrels of oil that are traded, there is a second market that trades in "paper" barrels. This simply indicates that oil is traded on "paper" based on a perceived monetary value of oil and there is not usually a physical exchange of the product. The two key markets where paper barrels of oil are bought and sold are in New York, on the NYMEX (New York Mercantile Exchange), and in London on the IPE (International Petroleum Exchange). In these futures markets, paper contracts for oil are bought and sold based on the expected market conditions in the coming months, or even years.
There are two types of buyers and sellers in the futures market: those that are actual producers or users of crude oil and those who buy futures contracts as an investment, without any intention of ever taking possession of the actual crude oil. The first group use the futures market to protect themselves from price volatility by locking in either their costs or their revenue. The second group are investors who can make money by correctly guessing whether prices will increase or decrease in the future.
In the spot market, oil is bought and sold for cash and delivered immediately. The current spot price for oil is influenced by the futures market price because the futures price represents the market's collective view, at a given point in time, of where prices may be headed. The media most often quotes the futures market price in the nearest month as representative of the current price of oil.
The factors that can influencing prices in the global oil market are bad weather and natural disasters like the Hurricane Katrina which has not only caused an estimated $25 billion worth of damage to mainland Louisiana, Mississippi, Alabama
and Florida but has also halted production of oil in the region and left oil platforms reportedly floating in the Gulf and another wedged under a bridge. After that power lines are down, communication systems out of action and water supplies threatened following the damage caused by winds in excess of 100 miles per hour and the torrential rain. Another important factor that can influence prices is political reasons. For instance, oil supplies from Nigeria have been disrupted following a series of incidents in which foreign workers in the energy industry have been kidnapped and violence has been a feature of life in the region. In addition to this, there is also strike action by workers who are protesting about plans for privatisation and about pay. This has led to daily production levels being nearly 700,000 barrels below normal. On the other hand, the dispute over nuclear development in Iran has caused more jitters on oil markets. Iran seems to insist in about continuing its nuclear ambitions and the West is looking to put increased pressure on the Iranian government to pull back from its ambitions. The US military has stepped up various manoeuvres in the Gulf off the coast of Iran and there is further talk of sanctions and this is making markets nervous. A serious factor is also the war. For instance the conflict between Hezbollah and Israel increased tensions in the Middle East. As the war raged, fears about disruption to oil supplies in the area again pushed up oil prices.
There are also taxes which is another factor. Government decide for the taxes according to the needs of the country, so somebody could find big differences in the prices comparing two countries. Other factors are labour disputes, halting transport of oil from producers, ongoing geopolitical problems, a decline in the value of the U.S. dollar, persistent refinery bottlenecks, market speculation and latest developments in energy policies.
But the most common factor that influencing prices in the global oil market is the balance between supply and demand. Price elasticity of demand is the responsiveness of demand to changes in price. We know that demand is negatively related to price - when price rises demand falls and vice versa. Elasticity gives us some measure about the strength of the relationship between price and demand. To measure elasticity we use a formula;
The figure we get has no units - it is not centimetres, litres or anything else, just a number but what that number is tells us a great deal. Part of the problem here is in getting used to the terminology used. There are certain things to remember:
- Ped always has a minus sign in front of it - this is not a minus sign in the mathematical sense but it is there to remind you that there is a negative relationship between price and demand - as one goes up the other goes down and vice versa.
- The nearer the number is to 0 the more inelastic the relationship is. A good with an elasticity of -0.6 is classed as inelastic but one that has a measure of - 0.8 is more elastic than the other even though it is still classed as inelastic!
- If the measure is between 0 and -1 the good is said to be 'inelastic'.
- If the measure is -1 the percentage change in demand is the same as the percentage change in price. The good is said to have 'unit elasticity' (unit meaning 1)
- If the good has elasticity over 1 it is said to be 'elastic'.
The balance between supply and demand is the most important and the only factor that can influence prices in the global oil market. This think makes it important and useful tool for those who work in this sector. All the other factors we can find are related to this balance between supply and demand and influence this relation either negatively or positively. But they can not stand alone without this relation. Because of that economics become a great tool
REFERENCES
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David Begg, (2006), Foundation of Economics, 3rd edition, Mc Graw-Hill education
ALL ACCESSED ON 26TH JANUARY 2008
