Today I will talk about the largest oil-producing countries in the world and the oil industry.
For 2020, the top 10 largest oil producers by the number of barrels per day produced are as follows:
- USA - 19.51 million - 19%
- Saudi Arabia - 11.81 million - 12%
- Russia - 11.49 million - 11%
- Canada - 5.50 million - 5%
- China - 4.89 million - 5%
- Iraq - 4.74 million - 5%
- United Arab Emirates - 4.01 million - 4%
- Brazil - 3.67 million - 4%
- Iran - 3.19 million - 3%
- Kuwait - 2.94 million - 3%
Oil production figures change regularly.
Oil industry overview
The oil industry is one of the most popular industries in the world, due in part to the high volatility of oil prices. As in any other financial market, the main factor determining the price of oil is the ratio of supply and demand.
Supply-side factors affecting the price of oil include production decisions made by the Organization of the Petroleum Exporting Countries (OPEC), geopolitical issues and weather conditions. OPEC holds regular meetings to set oil production quotas for member countries in order to regulate oil supplies and control its price. Demand factors include dependence on oil, the price of the US dollar and global economic performance.
The top 10 largest oil producers provide 71% of the world's oil, which is more than 100 million barrels per day. Oil is mainly used in transportation (gasoline and diesel), but it also powers some lubricants, plastics and pharmaceuticals.
The two most popular oil benchmarks in the world are Brent crude and West Texas Intermediate (WTI). The main differences between them have to do with their respective mining sites and compositions, and how they are influenced by geopolitical factors.
Leading oil producing countries
USA: 19.51 million barrels per day
The United States has been the largest oil producing country in the world since 2017. Here, oil is produced in 32 states and US coastal waters, most of which is produced in Texas (41%). The country is also the largest consumer of oil, consuming a total of 7.47 billion barrels of oil per day.
One of the main reasons the US is a leader in oil production is because it was the first country to use new drilling techniques. Drilling rigs can now drill horizontally, providing greater access to the oil producing rock. Between 2018 and 2019, U.S. oil production increased by just over 9%.
Saudi Arabia: 11.81 million bpd
Before the US became the world's largest oil producer, Saudi Arabia held the top spot for several years. It is the sixth largest consumer of oil, using an average of 3.78 million barrels per day.
Following OPEC cuts, Saudi Arabia's oil production fell by 609,000 bpd from 2018 to 2019. It was cut by another 3.30 million barrels per day in 2020 due to reduced demand due to Covid-19. These production cuts are a source of domestic concern, as Saudi Arabia's oil production accounts for about 42% of the country's gross domestic product (GDP).
Russia: 11.49 million barrels per day
Russia was once the world's leading oil producer before being overtaken by Saudi Arabia and then the US. Overall production growth between 2018 and 2019 was less than 1% as OPEC and major Russian oil producers agreed to cut production due to lower oil prices. Then, in early 2020, Covid-19 cut production by 20%.
The main producing region of the country is located in Western Siberia, at the Priobskoye and Smotlorskoye deposits. As of June 2020, Russia is the fifth largest consumer of oil, accounting for about 4% of the global volume.
Canada: 5.50 million barrels per day
Canada is slowly climbing the list of top oil producers, rising from fifth (2018; 5.29 million barrels per day) to fourth. By 2050, production is said to increase by more than 120%, which will exceed the growth rate of all non-OPEC countries. While boosting production can be expensive, since most of Canada's oil (96%) comes from oil sands, the country has access to advanced technology to lower production costs.
Canada's oil consumption is just over 2.4 million bpd and it has enough oil to last over 180 years at current consumption levels. Further plans for the future include an expansion of trade agreements expected to be in place by December 2022.
China: 4.89 million bpd
China is the world's fifth largest oil producer, but it is the second largest consumer - it uses about 14 million barrels a day. This is one of the reasons why the market reacted so strongly to the drop in demand for oil (more than half a million barrels per day) from China as a result of the Covid-19 pandemic.
Most of China's domestic oil is produced in the northeast and north-central region. Overall, China's oil production has been slowly declining, and at current levels of production and consumption, it has about five years of proven reserves.
Iraq: 4.74 million bpd
Between 2018 and 2019, Iraqi oil production increased by 2.6%, bringing production to 4.74 million barrels per day. It accounts for about 9% of the world's oil reserves, which is more than 140 billion barrels.
Although it ranks only sixth on the list of top oil producers, it is the second largest of the OPEC countries. It is also the second largest exporter of the commodity in the world. Since 2010, Iraqi crude oil exports have doubled from 2 million barrels per day to 4 million barrels per day - most of the oil goes to China, India and Europe.
UAE: 4.01 million bpd
The third OPEC country in the list of leading oil producers is the United Arab Emirates (UAE). The last time the country produced more than 4 million barrels per day in 2016, after which the level of production decreased by 3.1% (2017).
Oil reserves in the UAE, amounting to 98 billion barrels, have changed somewhat since 1988. At the current rate of production and consumption, this means that the country has enough reserves for almost 300 years.
Brazil: 3.67 million barrels per day
Brazil saw a significant increase in oil production from 2018 to 2019 and again in 2020. By December 2019, production stood at 3.10 million barrels per day, up 0.52% from November 2019 and up 15.44% from the previous year.
Like most oil-producing countries, Brazil's oil exports have declined in recent months due to lower global demand. The country owns less than 1% of the world's oil reserves - enough for 15 years.
Iran: 3.19 million bpd
In the 1970s, Iran exercised considerable control over the oil industry, producing between 5 and 6 million barrels of oil per day. As more countries began producing and exporting oil, this number has dropped dramatically. This was followed by further reductions in production as the US tightened sanctions on Iran.
Changing economic conditions have led Iran to lower its expectations for oil revenues from 29% of GDP in 2019 to just 9% in 2020. However, he remains committed to his investment in oil, with a goal of $500 billion in the sector by 2025.
Kuwait: 2.94 million bpd
Oil (and gas) production in Kuwait accounts for over half of GDP and over 90% of export earnings. The country had planned to increase production to 4 million barrels per day in 2020, but growth has slowed due to the global pandemic. Because Kuwait is so dependent on oil production to maintain its economic position, it may need to find another industry to boost its revenues.
Oil consumption in the country at the end of 2019 was 339,000 barrels per day, down 33% (from 451,000) in 2018.
How to trade and invest in oil
You can access oil by trading or investing. Your choice may depend on your personal preferences, your risk appetite and when you want to trade. You can speculate on the price of oil, oil futures and oil options using CFDs, or invest in oil industry exchange-traded funds (ETFs) and buy shares of oil companies.
Futures are traded on exchanges and reflect the demand for various types of oil. This method is preferred by traders with a longer-term outlook as positions can be held without having to pay overnight funding costs. Oil futures usually have slightly wider spreads, but that's because the overnight funding fee is already included.
If you want to invest in oil, you can buy oil company shares or ETF shares. When you invest, you acquire direct ownership of the underlying asset and you can only make a profit if prices rise.
ETFs are investment vehicles that track the movement of a basket of assets. Some oil ETFs will seek to reflect the price of a specific asset, such as Brent crude or WTI, while others will have a set of oil-related companies as their benchmark index. Many investors prefer ETFs because they are a good way to allocate capital.
Investing in oil stocks means that you will own the underlying shares of an oil company, such as BP. You can choose this method if you want to profit later on by selling shares at a higher price. In addition, investing offers other benefits such as dividend payments.
Oil Industry Outlook
The future of the oil industry hinges on three main factors: the long-term effects of the Covid-19 pandemic, economic growth in countries such as the US and China, and the outlook for renewable energy.
The coronavirus crisis has created a lot of uncertainty in the oil markets, and while it is impossible to pinpoint exactly what the long-term effect might be, the obvious problems are becoming more long-term. Economic measures to support the oil industry during the crisis may reduce its impact, but the changes will inevitably have a significant effect on production and consumption.
In addition, the world's largest economies could be hit hard by GDP growth due to changes in oil supply and demand. It remains to be seen how these economies will react to the production cuts, but this is likely to have a lasting impact on oil market liquidity and volatility.
The US Energy Information Administration (EIA) predicts a reduction in the use of conventional energy sources in the US (oil, coal and gas) in the coming years. There is a forecast that the use of renewable energy sources will grow from 17% in 2019 to 21% in 2020 and to 23% in 2021. However, the global economy is still very dependent on oil, and it remains one of the world's most valuable resources.
If you're interested in getting to know the oil industry, it's important to keep up with the latest news and make sure you have a good risk management strategy in place.