The oil industry is an economic powerhouse and the movements of oil prices are closely watched by investors and traders. Changes in oil prices can send shockwaves throughout the global economy. Every movement on the production and consumption side of oil is reflected in the price. Oil is not a diamond or caviar, luxury items of limited utility that most of us can live without. Oil is abundant and in great demand, making its price largely a function of market forces. There are many variables that affect the price of oil, but let's take a look at how one of the most basic economic theories, supply and demand, impacts this precious commodity. The law of supply and demand states that if supply goes up then prices will go down. If demand goes up then prices will go up.
The United States has been the largest oil producer in the last few years, outpacing the country which most would think is the largest producer: Saudi Arabia. The U.S. surpassed Saudi Arabia as the world's largest oil producer in 2013. The reason is due to shale fracking in Texas and North Dakota. However, in 2019, Saudi Arabia's oil production was down for the year compared to normal levels due to attacks on its oil fields, which disrupted production, and bumped Russia into the number two spot.
In 2019, the U.S. produced approximately 13 million barrels of oil per day. Russia produced approximately 10.6 million and Saudi Arabia produced approximately 9.75 million barrels per day. No other country is producing even half as much oil as any of the top three. Iraq is a very distant fourth at 4.6 million barrels per day. The oil industry is a complex one with many different components and many different players. Natural laws of supply and demand come in to play, as with any free-market, but each is impacted by the components that make up the oil industry, such as refining capability, oil reserves, and foreign affairs.
Discuss the current economic and political movements in the oil market. What are the ramifications on...