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Where It Comes From

The five biggest oil producers are Saudi Arabia, Russia, the United States, Iran and China. Saudi Arabia holds about a fifth of the world's proven oil reserves (260 billion barrels), with most of it being light and sweet. Saudi Arabia exports almost half of its production to Asia and about 20% of its production to the US. Russia, the second largest oil producer (with 60 billion barrels of proven oil reserves) exports 70% of its production, with most going to Central and Eastern Europe, though some does make its way to the U.S. The United States itself is producing less and importing more oil each year (hence the perpetual debates about drilling for more in the Arctic). Iran is the fourth largest oil producer in the world and holds about 10% of the world's proven oil reserves (136 billion barrels); it is also the second largest OPEC producer. China, sitting on 18.3 billion barrels of proven oil reserves, rounds out the top five oil producers, but like the U.S., is a net oil importer, a situation which is only going to get worse.

OPEC

The big axe in the oil business isn't just Saudi Arabia, however: it's OPEC. As a cartel, OPEC lives to violate the kinds of anti-monopoly laws designed to keep markets in the U.S. free and open.

OPEC's goal is to manipulate the available supply of oil to keep prices at the 'optimum' point: the one where OPEC members make the maximum amount of profit from their natural oil supplies. There are a dozen nations in the OPEC cartel.

Whether OPEC is actually effective at its stated goal is a topic for debate, but the simple fact is that when OPEC sneezes, the oil market catches a cold. The cartel holds regular meetings where the member countries agree to at least try and stick to certain quotas. When they say 'let's pump more!' prices tend to come down. When they cut production ... well, you get the idea.

Peak Oil

No matter how much oil OPEC pumps, however, one truism about the oil markets is that there's only so much of the stuff to go around. Eventually, we'll use it all up; they aren't making dinosaurs like they used to these days...

When we'll use it up, however, is a critical question, and one which has fostered the 'peak oil' debate. Peak oil advocated believer that we either have already or will soon reach the point where it becomes economically impossible to get any additional oil production out of the ground. This has necessary doomsday-like implications, and, again, is a topic all its own.

Profits Up, Exploration Up

Regardless of whether we've hit the tipping point of peak oil, recent high prices have changed the game in the oil business. When prices rise, the oil business gets more profitable. And when that happens, oil companies and entrepreneurs can spend more money accessing new supply. Historically, mankind has grabbed oil where it was easiest to get and easiest to use: light sweet crude from the shallowest locations. But there's oil in other places too: deep in the ocean, or trapped in sand or buried shale. In the past, oil shale and resources like the Canadian tar sands haven't been worth investigating. But with oil at $90 a barrel, that equation is changing.

This is good news in places like Canada which has huge oil sand fields that are now viable. And the U.S. is sitting on the largest deposit of shale oil in the world - a moderate estimate of 800 billion barrels of extremely hard to extract oil. You can read more in Shale Oil: Blood From A Stone?