Oil Price Analysis

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Oil Price Analysis: The Impact Of Supply & Demand
By Greg McFarlane

It’s easy to curse and moan when gas seems expensive. The oil companies are abusing the helpless customers who are effectively indentured to them, and can name their own prices thanks to a system of collusion and profiteering. Something, probably involving legislation, ought to be done.
Except the truth lies elsewhere. In the long run, oil is about as purely elastic a commodity as there is, every movement on the production and consumption sides reflected in the price. We’re not discussing diamonds 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.

Capacity and Reserves
If you’re curious as to why it seems that the nations that produce the most oil and the ones most commonly identified with oil production aren’t necessarily the same, you’re not imagining it. It’s the countries with the largest oil reserves, regardless of production capability, that have great sway over the market. Saudi Arabia is also the leader in that category, with reserves estimated at 267 billion barrels. Or 62 years’ worth, if you naïvely assume that production won’t increase nor reserve estimates change between now and 2076. As for the United States, its proven reserves are less impressive than its current capacity. The U.S. has 26.5 billion barrels in reserve, 12th in the world and far, far behind Venezuela (211 billion), Canada (174 billion), Iran (151 billion), Iraq (143 billion) and Kuwait (104 billion). The remaining countries ahead of the U.S. include some cordial ones (the United Arab Emirates, 98 billion), some antagonistic ones (Russia, 60 billion) and some whose friendliness is tentative (Libya, 47 billion.)

From Well To Fumes
So what does a barrel of oil represent, let alone 11.11 million of them? It’s hard for people outside of the industry to visualize the production numbers, so let’s

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