An overview of crude tanker industry (Part 2 of 10)
The majority of crude oil these days are being exported out of three regions: Middle East, West Africa (like Angola and Nigeria), and Former Soviet Union. Middle East and West Africa are major exporters of the oil by ship, while Russia relies heavily on pipelines to Europe. Roughly 57% of world’s crude oil export is being shipped out of Middle East and West Africa.
The Middle East comprises of oil-rich countries in Southwest Asia like Iran, Iraq, Syria, Kuwait, Saudi Arabia, Bahrain, Qatar, United Arab Emirates (UAE), Oman, and Yemen. Most of these countries are also part of the OPEC (Organization of the Petroleum Exporting Countries), which mission is to ensure stabilization of oil markets to secure efficient, economic and regular supply of petroleum to customers, but also a steady income to producers with a fair return.
These countries posses 60% of world’s known oil reserves driven by favorable geography for development of oil over thousands and thousands of years. Oil was first found in the Middle East in Persia (now Iran) 1911 by a British company, the 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 (right to natural resource) in 1932 during the great depression that started out in United States but had spread to the rest of the world. This drove British to search for alternative sources for oil nearby.
The first commercial quantities of oil was 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 is not controlled by large oil companies but by state-owned enterprises as governments, according to Charles Holbrook on Voice of North Caroline Ltd. (www.voiceofnc.com).
There are two key takeaways from this. First, the world’s economy was even interconnected since 1932. This means if one country experiences a slow down, other countries will likely see a similar slow down, and could negatively impact oil and tanker demand. Second, future OPEC production and export could give investors clue to tanker demand, which will affect shares of companies/ETF like FRO, TNK, TNP, NAT and SEA.
So where does most of the crude oil from Middle East and West Africa go? Find out in next part.
Browse this series on Market Realist:
- Part 1 - Overview and cheat sheet of investing in crude oil shipping industry
- Part 3 - 3 major groups of importers key to OPEC oil and tanker demand
- Part 4 - How breakdown of oil demand affects crude oil shipping
- Commodity Markets
- crude oil
- West Africa