Quote:
Originally Posted by rdret1
It does make you think about a few things. What really interested me was the analysis of petroleum attributed to ME countries vs. North American. If the small percentage attributed to OPEC is correct, why are our prices so tied to what OPEC does? I just can't connect the dots on that one.
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Quote:
Originally Posted by The Reaper
Because it is a global market.
You take one supplier off the market, prices go up everywhere as the global demand remains the same.
TR
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What he said. Also, a couple of additional points:
1. OPEC is more than the Middle East. Non-Middle East OPEC members are Algeria, Angola, Ecuador, Libya, Nigeria, and Venezuela.
2. OPEC countries account for 80% of the world's proven oil reserves. Middle Eastern OPEC members account for 66% of OPEC's total, or about 53% of the world's total proven reserves. OPEC accounts for 38%-42% (it fluctuates a lot) of the world's total production. OPEC's share was declining for a while as new sources of oil were discovered and placed in production, notably in the North Sea and the Gulf of Campeche, but those fields have matured, and OPEC's share is increasing.
3. Over 40% of United States oil imports and about 25% of total US consumption comes from OPEC members. The top sources of US oil imports are:
1. Canada - 22.5%
2. Saudi Arabia - 11.4% (OPEC member in Middle East)
3. Mexico - 10.3%
4. Venezuela - 8.1% (OPEC member)
5. Nigeria - 7.6% (OPEC member)
6. Iraq - 5.1% (OPEC member in Middle East)
7. Russia - 4.8%
8. Colombia - 3.5%
9. Angola - 3.5% (OPEC member)
10. Algeria - 3.0% (OPEC member)
11. Brazil - 2.8%
12. Kuwait - 2.0% (OPEC member in Middle East)
4. As you can see from the above list, geography plays a big role. Five of our largest sources of oil imports are in our hemisphere. Two others are on the Atlantic coast of Africa. Cost of transport is part of the cost of production, so we get much of our oil from as close as possible. Other countries do the same. Europe gets its oil mainly from the North Sea, Russian and North Africa and the Middle East. Japan is heavily dependent on Middle Eastern oil. China depends on the Middle East, but as energy needs have grown, it has broadened its interest into Africa, Latin America and its own Asia-Pacific region. But as TR states, it is a global market, so even if one country relies more heavily on a specific region, the global trade determines pricing.
5. Another big factor is the type of crude. Most Persian Gulf oil is light (low density) crude, but it is "sour" (higher sulfur content) rather than "sweet". Light sour crude is most suitable for fuel oils and diesel and costs more to refine. Light sweet crude is the benchmark in oil pricing because it is what best makes gasoline. Because US consumption is heavily geared toward gasoline, US imports are skewed not just toward countries closer to us, but also countries which are sources of light sweet crude. But again, still a global market. European countries are especially demanding of Libyan light sweet crude, which probably played a big role in prompting British and French-led NATO action (and Italian inaction, since Rome probably was more inclined to just deal with the former dictator).
6. Another big factor in the cost of production and consequently the price is, well, the cost of production. The single largest oil field in the world is Saudi Arabia's Ghawar oil field, which accounts for half of Saudi production and by itself outproduces every country in the world except the US and Russia. Ghawar is practically Jed Clampett territory - the oil is as easy to get out of the ground as if Jed were a Bedouin and his old huntin' dog was a camel.
By contrast, the main domestic sources of oil are in Alaska and the Gulf of Mexico and many of our historically low production cost onshore sources matured long ago. Offshore oil production costs significantly more than onshore for obvious reasons, and onshore production from arctic and subarctic regions similarly costs more than it does from temperate regions and deserts.
As for our big non-OPEC sources, most of Mexico's oil production comes from the Gulf of Campeche, a maturing offshore oil field, and most of Canada's production is offshore or from the Alberta oil sands. That means most of Canada's oil is a tar-like substance called bitumen, which takes a lot of processing just to make transportable, much less refined. Venezuela produces mainly heavy sour crude, which must be heavily refined. Same for Colombia, which also has a less developed infrastructure for oil production. Russia's crude comes mainly from Siberia, so like Alaska and Canada, is more costly due to remoteness from refineries and harsh weather conditions.
So ultimately what we have is a well-developed global market in a commodity that is distributed worldwide but not in the same quality or ease of production, and OPEC members control a huge proportion of not just the total, but the most desirable and cheapest parts of the total.