The majority of crude oil these days is exported out of three regions: the Middle East, West Africa (countries like Angola and Nigeria), and former Soviet Union countries. The Middle East and West Africa are major exporters of crude oil by ship, while Russia relies heavily on pipelines to Europe. Roughly 57% of the world’s crude oil export is shipped out of the Middle East and West Africa.
The Middle East
The Middle East comprises oil-rich countries in Southwest Asia like Iran, Iraq, Syria, Kuwait, Saudi Arabia, Bahrain, Qatar, the United Arab Emirates (UAE), Oman, and Yemen. Most of these countries are also part of OPEC (Organization of the Petroleum Exporting Countries), whose mission is to ensure the stabilization of oil markets in order to secure efficient, economic, and regular supply of petroleum to customers as well as a steady income to producers with a fair return.
These countries possess 60% of the world’s known oil reserves, driven by favorable geography for the development of oil over thousands and thousands of years. Oil was first found in the Middle East in Persia (now Iran) in 1911 by a British company, APOC (Anglo-Persian Oil Company), which is now BP. Yet further exploration was slow to develop, and the new Iranian government revoked APOC’s concession (its right to natural resources) in 1932 during the Great Depression, which had started out in the United States but spread to the rest of the world. This drove the British to search for alternative sources for oil nearby.
The first commercial quantities of oil were discovered in 1938, and the first tanker was shipped out in 1939. Operations were temporarily interrupted with the breakout of World War II, but the largest conventional oil field, Ghawar Oil Field, was later found in 1948. Note that much of today’s oil isn’t controlled by large oil companies but by state-owned enterprises and governments, according to Charles Holbrook on Voice of North Carolina (www.voiceofnc.com).
There are two key takeaways from this. First, the world’s economy has been interconnected since 1932. This means that if one country experiences a slowdown, other countries will likely see a similar slowdown, which could negatively impact oil and tanker demand. Second, future OPEC production and export could give investors clues as to tanker demand, which will affect the shares of companies and ETFs like FRO, TNK, TNP, NAT, and SEA.
So where does most of the crude oil from the Middle East and West Africa go? Find out in the next part of this series.
© 2013 Market Realist, Inc.
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