Global Oil Market

Global Oil Market

Source: BP Statistical Review of World Energy. (oil production and consumption). Lujala, Päivi; Jan Ketil Rød & Nadia Thieme (2007) “Fighting over Oil: Introducing A New Dataset”, Conflict Management and Peace Science 24(3), 239-256 (oil field data). Harvard WorldMap (pipelines).

The global oil market is composed of three main elements interacting to set supply, demand, and price:

  • Production. Oil producers have a level of output related to their physical capabilities at extracting oil as well as market demand subject to seasonality. The geography of oil production shows a high level of concentration and output due to the significant potential for scale economies of the industry and a concentration of oil reserves. OPEC countries accounted for 41% of global production.
  • Consumption. Each economy has a level of oil consumption often expressed in barrels per day. Global oil consumption and production are usually similar since it represents a supply/demand equilibrium.
  • Reserves (not shown). Medium or long-term expectations about the future level of potential output.

There are significant differences in the geography of oil consumption and production, which require distribution infrastructures such as pipelines and shipping networks. In 2018, global oil production was at 95 million barrels per day, but consumption is marginal in a large number of countries. There is a correspondence between the level of oil consumption and the level of economic development. The United States, Japan, China, Germany, Russia, Italy, and France, accounted for 52% of the global oil demand.

The geography of oil production is much more concentrated than its consumption. Eight producers, Saudi Arabia, the United States, Russia, Iran, China, Venezuela, Mexico, and Norway, accounted for 55% of the global production with a significant share of production in the Middle East. Unlike most countries where oil is domestically produced, a significant portion of OPEC’s oil is traded in international markets. The geographical concentration of reserves in the Middle East is also evident.