Oil investing can offer attractive returns but it comes with big risks: volatile markets sensitive to geopolitics and the increasingly urgent transition to green energy.
Introduction to Oil Investing
What country produces the most oil?
According tothe U.S. Energy Information Administration, the United States is the world’s largest producer of oil. In 2021, the U.S. produced an average of 18.88 million barrels per day. Saudi Arabia is the next largest producer at 10.84 million barrels per day. Russia’s 10.78 million barrels per day makes it the world’s third largest producer. Canada and China round out the top five with 5.54 and 4.99 million barrels respectively.Learn More: The World’s Top Oil Producers
Who controls the price of oil?
No one country or group of countries has complete control over oil prices, but the Organization of the Petroleum Exporting Countries (OPEC) does exert outsized influence on global supply. The group attempts to control oil prices by setting production quotas for its 13 member countries, which together account for about 40% of global oil production, 60% of global exports, and 80% of proven oil reserves. Saudi Arabia’s advantage within OPEC comes from its preponderance of spare capacity (i.e., unused but easily accessible reservoirs), which allows it to respond relatively quickly to unexpected changes in supply or demand and volatile market prices.Learn More: OPEC vs. the U.S.: Who Controls Oil Prices?
What states produce the most oil?
Texas accounted for nearly half (42.6%) of all U.S. oil production in 2021. The Lone Star state produced 1.7 billion of the approximately 4 billion barrels produced in the U.S. that year. The next largest oil producers were New Mexico (11.2%), North Dakota (9.6%), Alaska (3.9%), and Colorado (3.5%).Learn More: Top 6 Oil-Producing States
How much of the price of gas is taxes?
Between 2012 and 2020, federal and state taxes accounted for 17% of the cost of gasoline on average. The majority (54%) of gas expenses can be attributed to the cost of crude oil. Refining accounted for about 14% of the cost of a gallon of gasoline, as did distribution and marketing expenses.Learn More: Learn More
Strategic Petroleum Reserves
Strategic petroleum reserves are stockpiles of crude oil maintained by countries to be released in the event of a major supply disruption. Countries release oil from their strategic reserves to ensure adequate supply when natural disasters, accidents, or geopolitics disrupt imports or domestic production.
West Texas Intermediate
West Texas Intermediate (WTI) is a specific grade of crude oil that is light (low density) and sweet (low sulfur content). As the name suggests, WTI is sourced mostly from Texas. WTI underlies crude oil contracts on the New York Mercantile Exchange. It, along with Brent crude from the North Sea, is a major benchmark in global oil pricing.
Fracking is a slang term for hydraulic fracturing, the process of expanding cracks in the earth’s surface by injecting them with water and chemicals at high pressure. Fracking is used to access previously inaccessible oil and gas reserves trapped in hard rock formations. It also helps drillers extract oil quicker and more easily.
Crude oil is a naturally occurring liquid composed of hydrocarbons that are formed from the remains of ancient organisms. Crude oil is found beneath the earth’s surface in reservoirs, from which it is extracted and refined for various uses. Crude oil is a nonrenewable resource, meaning there is a finite supply and it does not regenerate at the rate humans use it.
Petrodollars are oil export revenues denominated in U.S. dollars. They are not a distinct currency, and, though the U.S. dollar is the currency most often used to quote oil prices and settle accounts, not all oil exports are transacted in USD.
Upstream refers to the first of three stages of oil production: upstream, midstream, and downstream. Upstream operations include initial exploration, drilling, and extraction. Midstream operations include the transport of crude to refineries. Downstream refers to the operations closest to the consumer: refining and end-product distribution.