The US provides 3% of world oil resources. Why can this small amount of output affect the price of oil?

Question

So the hurricane Gustav is shutting down production in the Gulf of Mexico but, then that isn't much of the oil produced compared to the overall world production. From what I have seen, the US only produces about 3% of all the oil in the world. So the Gulf of Mexico, is probably much less than that 3%. Why are we getting gouged on prices, the price of gas going up again, even though this little amount of oil produced isn't much compared to the rest of the world?

Answer 1

Because the oil goes to American locations, and there is a savings in costs. Japan has to import all of its oil, which is partly why their prices for gas are so high.

If an American refinery is shut down, it would have the biggest impact on American prices. We'd have to get more oil from more expensive foreign sources, raising demand.

Answer 2

It should not, simple answer greed.

Answer 3

The US provides 9.5% of the world oil, behind Saudi Arabia 11.8% and Russia 11.7% only, the problem is the consumption, US consumes 25%, so it has to import a lot, and the US pumping out as fast as it can, because the structure to pump in place belongs to the same interest group that profits from the high price, then why rush, the 3% is really a lot, imagine Iraq pumps about 2.7%, Iran 5%, Venezuela 3.8% ... if the US could pump extra 10% it could just drop imports from some countries that relations aren't friendly, but in the long term US would dry out faster and then be more dependent and vulnerable, so it's better to pay more now, dry everybody else and than use the reserves it has hidden, imagine the US proven reserves are some 21.76 billion bbl/ 8.322 million bbl a day produced, it is supposed to last 7 years and 4...5 months...this is the proven reserves, not the easy oil being pumped now, this is in areas ppl don't want them and on the oceans, soooo..... in truth, the 3% shut down for a few days shouldn't really matter, but they're playing with this info to go back a few cents and keep it up... their business is coming to an end and they wanna cash out, they don't know if they dominate the next era of energy solutions.

Answer 4

opec deals in dollers up to now. when the doller looks a little shaky and over streatched the oil prices go up. if opec delt in euros the doller would hit rock bottom and you end up voting for obama as a last resort and start up some more production and exporting from home and gert the tax payers paying tax that fit their earnings so they can afford to live like middle class human beings before the usa empire desolves into civil war and call their troops home to shoot americans and turn into a military dictatorship for real

Answer 5

It's all politics and greed, dude.

The OPEC nations could easily almost double their output, which would send prices tumbling.  But why would they?

Answer 6

It doesn't. I suggest you take an economics course and learn about supply and demand.

The amount of oil the US provides out of the world's total oil resources is way way down the list of factors affecting oil prices. What matters is how much we consume, and how much of that consumption is supplied by the Gulf oil fields.

28% of the oil the US *consumes* every day comes from areas shut down by Gustav. If that oil flow stops, then either our oil consumption needs to decrease by 28% or we need to get that 28% from elsewhere.

Since the US consumes 25% of all the oil consumed in the world on a daily basis, and 28% of that consumption is no longer supplied, that means that the US is suddenly going on the market and competing to buy 7% of the world's oil that it wasn't trying to buy last week.

That's a lot of oil. Imagine if, starting tomorrow, seven out of every 100 gallons of water you used in your house simply didn't come out of the tap. Or say that at the local Starbucks, seven out of every 100 cups of coffee they poured were just empty cups of air. What would happen? You'd have a lot of regular customers offering to pay more for their coffee so that they could drink it instead of somebody else.

Well, that's what happens with oil. On the world oil market, where barrels of oil are bought and sold like cups of coffee, the US has to offer to pay more money to get that oil than other countries were paying last week. Meanwhile the countries are also willing to pay more, and an auction ensues. As long as at least two countries are willing to buy the oil at a certain price, the seller can raise that price. In fact the seller can raise and raise and raise the price until only one country is still willing to buy it. And that becomes the price of oil until that buyer buys all he wants at that price. At that point the seller has to drop the price a little to sell the next barrel to the country that dropped out of the bidding last.

This is a gross simplification of what happens, but that

s basically it. It means that the US will pay more for oil because it needs it more, while a country whose supply is not directly affected by the storm will pay a little more than it paid before Gustav, but still less than the US pays.

For example, in Europe, Gustav itself won't affect the price of oil one bit, because no Gulf oil goes to Europe anyway. What will affect the price of oil in Europe, though, is the US buying more oil on the foreign market than it used to. Europe would have bought that oil, but now they will have to pay a bit more for it because now they have to bid against the US for it.

The less there is of something, the more it costs. If there's 7% less of something like oil, *overnight*, then at the very least the price will go up 7%. In truth it will go up more than that because people are willing to pay more for it. Countries can't just change their habits at a moment's notice.

It gets still more complicated. Sometimes increased costs are delayed or advanced. In other words, sometimes when you pay more for gas, it's because the price jumped unexpectedly a week ago - so you're really paying for how much more oil cost a week ago rather than how much it costs now. Other times, you're paying extra based on what the seller thinks he will have to pay for the oil he buys in the future - he wants to get that extra cost out of you now in case you stop buying oil next week because it's too expensive. There are a lot of factors involved.

What matters is the amount of oil consumed, and how much oil there is in supply to meet the demand. Which country produces what percentage of the world's oil supply doesn't matter, and to the degree it matters, producing a small percentage means you have to pay more, not less.

EDIT:

>> I understand supply and demand! <<

I will take your word for it, but your inclusion of the 3% of the world's oil supply suggests otherwise. It's so irrelevant that no one in their right mind could presume it was "tongue in cheek." With all due respect, it just makes you sound ignorant. I had assumed you were in high school or something and just didn't understand economics - and judging from the answer below mine, I'm not the only one who thought that. If it's gentle sarcasm you were going for then you might want to seriously consider recrafting your question, because gentle sarcasm isn't what's coming across.