On a global basis, the world produces around 100 million barrels of oil a day. Who’s the
leading producer? We are! That’s right, the United States. You might have guessed
Saudi Arabia, or some other middle Eastern country. But it’s the United States,
producing around 20 million barrels a day, Coincidentally, we also use around 20 million
barrels a day. Perhaps you’ve heard the comment that we’re now energy independent,
since we produce and consume about the same amount of oil daily. To some extent
that’s true. But it’s not that simple. In fact, we export some of the oil we produce, and
we also import oil as well.

The next leading oil producers are Saudi Arabia and Russia, each with about 11 million
barrels a day. Canada produces about five million barrels a day and sends roughly four
million barrels to the U.S. Canada is our major supplier of imported oil with Mexico
being a distant second. Of the 20 million we produce, we export about four million,
primarily to Europe and Asia.

One fifth of the daily global production comes from middle Eastern countries and has to
pass through a narrow stretch, the Strait of Hormuz. Currently, Iran has this strait locked
down, threatening to attack any ships passing through it. The U.S. uses very little of the
oil passing through the strait. Nevertheless, the virtual stoppage of this major supply
chain has created the sharp increase in prices.

Oil is a global commodity that trades on a global market price. So while the Strait of
Hormuz is on the other side of the world, U.S. oil producers still collect the world market
price. In March, the U.S. announced the release of 172 million barrels of oil from our
Strategic Petroleum Reserve. Given our level of usage, that’s less than nine days! That
release of oil is more symbolic than it is strategic. Reopening that strait is critical to oil
prices returning to normal levels.

This isn’t meant to be a downer of a discussion; rather a 30,000-foot view of the global
oil market with actual numbers. Markets have a way of working things out. Oil
producers want to sell oil and consumers across the globe need fuel for their daily lives.
That interaction of buyers and sellers is a powerful force. The political and economic
consequences of this disruption will hopefully move us to a quick resolution.

What to do as an investor? Global equity markets have remained resilient despite the
short-term uncertainty of the Iran situation. A broadly diversified portfolio of both U.S.
and foreign stocks and bonds has worked well over the long run. History shows that
financial markets ultimately reward patient, disciplined investors, in spite of short-term
disruptions that regularly occur.

Dr. David Ashby is a Certified Financial Planner and the retired Peoples Bank
Professor of Finance at Southern Arkansas University. He holds degrees in
accounting and business administration and a doctorate in finance from
Louisiana Tech.