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Where Our Oil Comes From

Did you know?

OPEC and Persian Gulf countries are not the same.

The Organization of the Petroleum Exporting Countries (OPEC) was organized in 1960 to negotiate with oil companies on matters of oil production, prices, and future concession rights. Of the 15 countries in OPEC at the end of 2018, only 6 of them bordered the Persian Gulf.

OPEC countries Persian Gulf countries
  • Algeria
  • Angola
  • Congo
  • Ecuador
  • Equatorial Guinea
  • Gabon
  • Iran
  • Iraq
  • Kuwait
  • Libya
  • Nigeria
  • Qatar
  • Saudi Arabia
  • United Arab Emirates
  • Venezuela
  • Bahrain
  • Iran
  • Iraq
  • Kuwait
  • Qatar
  • Saudi Arabia
  • United Arab Emirates

The United States is one of the largest crude oil producers

Many countries produce crude oil, and the United States is one of the top five largest crude oil producers. U.S. refineries obtain crude oil produced in the United States and in other countries. Different types of companies supply crude oil to the world market.

Where is U.S. crude oil produced?

Crude oil is produced in 32 U.S. states and in U.S. coastal waters. In 2018, about 68% of total U.S. crude oil production came from five states. The top five crude oil-producing states and their shares of total U.S. crude oil production in 2018 were

  • Texas—40.5%
  • North Dakota—11.5%
  • New Mexico—6.3%
  • Oklahoma—5.0%
  • Alaska—4.5%

In 2018, nearly 16% of U.S. crude oil was produced from wells located offshore in the federally administered waters of the Gulf of Mexico.

Although total U.S. crude oil production generally declined between 1985 and 2008, annual production increased from 2009 through 2015. Production declined slightly in 2016 and increased in 2017 and in 2018, reaching the highest amount on record in 2018. More cost-effective drilling technology helped to boost production, especially in Texas, North Dakota, Oklahoma, New Mexico, and Colorado.

Many countries produce crude oil

About 100 countries produce crude oil. However, in 2018, five countries accounted for about half of the world's total crude oil production. The top five crude oil producers and their shares of world crude oil production in 2018 were

  • United States—13.2%
  • Russia—13.0%
  • Saudi Arabia—12.6%
  • Iraq—5.6%
  • Canada—5.2%

Different types of oil companies supply crude oil

The world oil market is complex. Governments and private companies play various roles in moving crude oil from producers to consumers.

In the United States, companies produce crude oil on private and public land and offshore waters. Most of these companies are independent producers, and they usually operate only in the United States. The other companies, often referred to as major oil companies, may have hundreds or thousands of employees and operate in many countries. Examples of major U.S. oil companies are Chevron and ExxonMobil.

Three types of companies supply crude oil to the global oil market. Each type of company has different operational strategies and production-related goals.

International oil companies

International oil companies (IOCs), which include ExxonMobil, BP, and Royal Dutch Shell, are entirely investor owned and are primarily interested in increasing value for their shareholders. As a result, IOCs tend to make investment decisions based on economic factors. IOCs typically move quickly to develop and produce the oil resources available to them and sell their output in the global market. Although these producers must follow the laws of the countries in which they produce oil, all of their decisions are ultimately made in the interest of the company and its shareholders, not in the interest of a government.

National oil companies

National oil companies (NOCs) operate as extensions of a government or a government agency, and they include companies such as Saudi Aramco (Saudi Arabia), Pemex (Mexico), the China National Petroleum Corporation (CNPC), and Petroleos de Venezuela S.A. (PdVSA). NOCs financially support government programs and sometimes provide strategic support. NOCs often provide fuels to their domestic consumers at a lower price than the fuels they provide to the international market. They do not always have the incentive, means, or intention to develop their reserves at the same pace as investor-owned international oil companies. Because of the diverse objectives of their supporting governments, NOCs pursue goals that are not necessarily market oriented. The goals of NOCs often include employing citizens, furthering a government's domestic or foreign policies, generating long-term revenue to pay for government programs, and supplying inexpensive domestic energy. All NOCs that belong to members of the Organization of the Petroleum Exporting Countries (OPEC) fall into this category.

NOCs with strategic and operational autonomy

The NOCs in this category function as corporate entities and do not operate as extensions of their countries' governments. This category includes Petrobras (Brazil) and Statoil (Norway). These companies often balance profit-oriented concerns and the objectives of their countries with the development of their corporate strategies. Although these companies are driven by commercial concerns, they may also take into account their nations' goals when making investment or other strategic decisions.

OPEC members have a large share of world oil supplies

OPEC is a group that includes some of the world's most oil-rich countries. Together, these countries control about 72% of the world's total proved crude oil reserves, and in 2018 they accounted for about 42% of total world crude oil production. Each OPEC country has at least one NOC, but most also allow IOCs to operate within their borders.

Last updated: April 24, 2019

How is crude oil found and produced?

The search for crude oil begins with geologists who study the structure and history of rock layers below the earth's surface to locate areas that may contain deposits of oil and natural gas.

Geologists preparing a hole for the explosive charges used in seismic exploration

Geologists preparing a hole for the explosive charges used in seismic exploration for oil and natural gas

Source: Stock photography (copyrighted)

Geologists often use seismic surveys on land and in the ocean to find the right places to drill wells. Seismic surveys on land use echoes from a vibration source at the surface of the earth, usually a vibrating pad under a special type of truck. Geologists can also use small amounts of explosives as a vibration source. Seismic surveys conducted in the ocean rely on blasts of sound that create sonic waves to explore the geology beneath the ocean floor.

Schematic of different types of oil and natural gas wells

Oil and gas wells image

Source: Wyoming State Geological Survey (public domain)

Schematic of the basic types of oil and natural gas deposits

Diatom image: Group of cleaned frustules

Source: Wyoming State Geological Survey (public domain)

If a site seems promising, an exploratory well is drilled and tested. If enough oil is found to make it financially worthwhile to pursue, development wells are drilled. The type of well that is drilled depends on the location, geology, and oil resource.

Advances in drilling and production technologies have increased U.S. oil production

In the past, a drilling rig drilled a single vertical well. Now, many directional or horizontal wells can be drilled from one location, or well pad, to access greater areas of oil- and natural gas-bearing rock.

Oil may flow to the earth's surface from natural pressure in the rock formation, or it may have to be forced out of the ground and up through a well. The type of geologic formation where the oil is located determines the technologies used to start the flow of oil and natural gas from the reservoir or resource-bearing rock into the wells.

Hydraulic fracturing is used to access the oil and natural gas contained in tiny pores of rock formations composed of shale, sandstone, and carbonate (limestone). Hydraulic fracturing breaks up the rock in the formations and creates pathways that allow oil and natural gas to escape from the rock layers. Hydraulic fracturing involves forcing water, chemicals, and sand or other proppants (materials used to keep the pathways open) under high pressure into the wells. Steam, water, or carbon dioxide (CO2) can also be injected into a rock layer to help oil flow more easily into production wells.

After the oil has been collected from wells in a production field, pipelines, barges, trains, or trucks transport the oil to refineries or to ports for shipment on oil tankers to other countries.

Conventional and unconventional production

Production of crude oil and natural gas is sometimes called conventional production or unconventional production. Conventional production generally means that crude oil and natural gas flow to and up a well under the natural pressure of the earth. Unconventional production requires techniques and technologies to increase or enable oil and natural gas production beyond what might occur using conventional production techniques. In the United States, most of the new oil and natural gas production activities on land use unconventional production technologies.

Tight oil production

The U.S. oil and natural gas industry uses the term tight oil to mean the different geologic formations producing oil at a specific well. Tight oil is produced from low-permeability sandstones, carbonates (for example, limestone), and shale formations. The U.S. Energy Information Administration (EIA) uses the term tight oil to refer to all resources, reserves, and production associated with low-permeability formations that produce oil, including shale formations.

Notable tight oil formations include

  • Bakken and Three Forks formations in the Williston Basin
  • Eagle Ford, Austin Chalk, Buda, and Woodbine formations along the Gulf Coast
  • Spraberry, Wolfcamp, Bone Spring, Delaware, Glorieta, and Yeso formations in the Permian Basin
  • Niobrara formation in the Denver-Julesburg Basin

Last updated: October 5, 2018