Dec. 06, 2023
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Since the Arab oil embargoes of the 1960s and 70s, it's been conventional wisdom to talk about American dependence on oil from the Persian Gulf. But the global oil market has changed dramatically since then.
Today, the U.S. actually gets most of its imported oil from Canada and Latin America.
And many Americans might be surprised to learn that the U.S. now imports roughly the same amount of oil from Africa as it does from the Persian Gulf. African imports were a bit higher in 2010, while Persian Gulf oil accounted for a bit more last year.
America is one of the world's largest oil producers, and close to 40 percent of U.S. oil needs are met at home. Most of the imports currently come from five countries: Canada, Saudi Arabia, Mexico, Venezuela and Nigeria.
Desert Kingdoms Versus The Great White North
Canada is far and away the biggest purveyor of crude to its southern neighbor, hitting a record 2.2 million barrels a day last year as its share of the U.S. market grew by 12 percent.
Energy expert Robert Rapier says the take-away for Americans may be "marry a Canadian," because he or she will be a citizen of an increasingly rich country. "Their budget looks good, and they're sitting on top of tremendous reserves," he says.
Saudi Arabia is a distant second, providing the U.S. with barely half as much crude as Canada. Other Persian Gulf countries also contribute to U.S. oil imports, but make up a relatively small share overall.
"People have tended to exaggerate how much oil we imported from the Middle East," says John Duffield, an energy expert and professor of political science at Georgia State University.
"In the long term, it may look like a historical anomaly that the U.S. became so involved in the Persian Gulf," he adds.
Producers Become Users
In terms of U.S. imports, Mexico is close behind Saudi Arabia in third place. Mexican imports did fall by more than 4 percent last year, partly because Mexico's oil production has been declining and partly because Mexican consumers are demanding more oil for their own use in an increasingly middle-class country.
It's a familiar story among oil-producing countries: As they become wealthier, they consume more of their own oil, says Rapier.
Although Venezuelan President Hugo Chavez is no fan of the United States, his country is still a big contributor to America's oil imports. That's at least partly because the economics of shipping Venezuelan oil across the Caribbean are so much more attractive than hauling it to other markets, such as Europe.
But Venezuela's exports to the United States fell by 5 percent last year, dropping to the lowest level in two decades.
Rapier says that's because Chavez's government has been neglecting its oil sector, "siphoning off money from its own industry and killing the goose that lays the golden egg."
Nigeria suffered an even bigger drop in its exports to the United States, down 22 percent last year from the year before, as oil production was disrupted by civil unrest.
Nigeria's turmoil has received relatively little attention in the U.S. even though that country now provides more oil to the U.S. than any Middle Eastern country except Saudi Arabia.
Does It Matter Where Oil Comes From?
In terms of global oil prices, analysts say the source of the oil isn't all that important.
"Anybody who follows the oil industry will tell you that it doesn't make any difference where the oil comes from," says Keith Crane, an energy expert at RAND Corp.
People have tended to exaggerate how much oil we imported from the Middle East. In the long term, it may look like a historical anomaly that the U.S. became so involved in the Persian Gulf.
Global oil markets are so intertwined, Crane says, that changes in any one part of the system can trigger effects elsewhere.
He points out that the U.S. has imposed sanctions on Iran and therefore does not import its oil. But "if Iranian oil goes off the [world] market, it still affects the price in the United States," Crane says.
Meanwhile, Iran has had no real problem selling its oil to Asian countries, though tougher sanctions are set to go into place this summer.
Now that the U.S. involvement in Iraq has wound down, Crane says, oil seems to be less of an American security concern.
"Do you need military might to preserve access to oil? I don't think there's a lot of evidence to say that's really important," he says.
Crane argues that many of the biggest security challenges the United States faces today are not directly related to energy. He points to the nuclear programs in Iran and North Korea, and the U.S. war in Afghanistan.
U.S. Is Producing More Oil
Analysts also point out that the U.S. is producing more oil domestically while reducing its dependence on oil in general.
The recent recession and the slow economic recovery have dampened demand for oil products. But "the big story is that the U.S. has really expanded production over the past several years," says Crane, citing the production of oil from shale in North Dakota and other states.
He notes that the country has also become more energy efficient, building cars with better gas mileage and shifting away from oil-based energy.
"Whereas the U.S. has been the biggest consumer of oil products in the world, the role of oil is smaller than it was in the '70s, and even than it was in the '90s," Crane says.
But the U.S. still spends huge sums on oil because the rise in world prices has more than made up for the drop in U.S. imports.
"Five years ago, we were importing 10 million barrels a day, but at $50 a barrel," says Rapier. "Now we're at 8.4 million barrels, but at prices over $100 a barrel."
As of 2023, the United States is still the single largest crude oil producer in the world, a position it has held since 2018. However, the U.S. is not a monolithic entity, and the amount of oil that a given area can produce is limited by how much crude is actually underneath it. As such, crude oil production varies from state to state. And though some states continue to pump out crude oil in enormous volumes, many have been experiencing a dwindling output over the years. Here's what to know about the top six oil-producing states, according to the U.S. Energy Information Administration, and their respective petroleum industries.
Crude Oil Production in the US
In the U.S., crude oil is produced in 32 U.S. states as well as on federal offshore lands. The domestic petroleum industry got its start in 1859 after the successful drilling of the first oil well in Titusville, Penn. As additional states began producing their own oil, the “black gold” rush created complex economic issues on a national scale, mainly overproduction, sudden price collapses, and frequent boom-and-bust cycles.
The Submerged Lands Act (SLA) of 1953 gave individual states rights to the natural resources of submerged lands from their respective coastlines to no more than 3 nautical miles into the Atlantic, Pacific, and Arctic oceans, and the Gulf of Mexico. The only exceptions are Texas and the west coast of Florida, where state jurisdiction extends from the coastline to no more than 3 marine leagues out into the Gulf of Mexico. Any area beyond that may fall into federal jurisdiction. As of March 10, 1983, when then-President Ronald Reagan set up the U.S. Exclusive Economic Zone (EEZ), this amounts to roughly 200 nautical miles from the U.S. coastline.
In November 1900, the first U.S. auto show took place in New York City’s Madison Square Garden and introduced the internal combustion engine to the world. This device helped make the oil industry into the juggernaut it is today by utilizing what had, up until this point, been just a byproduct of refining: gasoline. Less than two months later, an oil gusher at Spindletop, Texas, launched the modern U.S. oil industry.
Beginning in 1985, the year the EIA began recording oil production statistics, total U.S. crude production generally declined up until 2008. However, due to the adoption of more cost-effective drilling technology that boosted production, annual output increased nearly every year starting from 2009 and reached the highest amount on record in 2019. In 2020, U.S crude oil production dipped by approximately 8%, the largest annual decrease in recorded U.S. history, due to a sudden drop in petroleum demand as a result of the COVID-19 pandemic.
Our research has found that nearly 71% of total U.S. crude oil production came from just six states in 2021, and the operational history of the oil and gas industry within these territories can go back decades.
The Top Oil-Producing States
1. Texas
Texas is the single largest domestic producer of crude oil, with 31 petroleum refineries that can process nearly 5.4 million barrels per calendar day. The Lone Star State has had a culture associated with the oil business for more than a century. The drilling of the famous Spindletop well near Beaumont, Texas, in 1901 is typically credited with starting the modern oil era, in addition to changing the future of U.S. industry and transportation and popularizing rotary drilling technology. The well blew out and reportedly produced 100,000 barrels of oil per day until it was brought under control nine days later.
Texas produces more electricity than any other state, nearly double the output of the second-highest electricity-producing state, Florida. Texas is also the largest energy-consuming state in the nation. Its industrial sector, which includes refineries and petrochemical plants, accounts for half of the energy consumed in the state. The Electricity Reliability Council of Texas (ERCOT) manages the state's primary electrical grid, which operates completely within Texas and serves about 75% of the state's territory. ERCOT is unique in that it isn't subject to federal oversight and is largely dependent on its own resources to meet the state's electricity needs.
Virginia's share of crude oil production in the U.S., making it the smallest producer of the 32 oil-producing states.
2. New Mexico
New Mexico is the second-largest domestic oil producer and one of three states that saw an increase in production from 2019 to 2020, despite the reduced demand brought about by the pandemic. The Land of Enchantment is a relative newcomer to the oil business compared to other top producers, with its first successful commercial well drilled in 1924. Despite this, the oil and natural gas industry has been a major player in the state’s economy. It is New Mexico's largest employer and provides local schools, roads, and public facilities with over $2.5 billion in funding each year.
New Mexico's industrial sector and transportation sector each account for roughly a third of the state's energy use, with the latter industry using more energy per capita than it does in almost three-fourths of the rest of the U.S. Despite oil's historical and economic importance in New Mexico, mining, including oil and natural gas production, accounts for just one-tenth of its GDP. Notably, New Mexico's petroleum consumption per capita is greater compared to about two-thirds of the rest of the country. Its transportation sector is the leading petroleum consumer in the state, accounting for over four-fifths of all petroleum used in New Mexico.
3. North Dakota
North Dakota is the third-largest crude producer in the U.S., and it has been one of the fastest-growing state oil producers from 2016. This amazing growth has been powered by the development of the Bakken Shale formation in the Williston Basin. Although oil exploration in the Peace Garden State began in the early 20th century, it wasn't until 1951 that its first oil discovery occurred. Production was initially limited until over a decade ago when horizontal drilling and hydraulic fracturing were applied to the Bakken formation. The majority of oil rigs currently operating in North Dakota are targeting this same formation.
In part due to the state's smaller population, North Dakota's total energy consumption is one of the lowest in the U.S. However, thanks to its energy-intensive industrial sector, it is one of the top five states in terms of energy consumption per capita and the amount needed to produce each dollar of the state's gross domestic product (GDP). That said, North Dakota's total energy production is also nearly seven times greater than its energy consumption. Approximately three-fifths of North Dakota's total primary energy production is in the form of crude oil. Additionally, North Dakota is a U.S. entry point for pipelines transporting crude oil from Canada.
4. Alaska
Alaska is the fourth-largest oil producer of crude oil. The Last Frontier was a relatively minor domestic source of crude prior to the discovery of oil in the North Slope in 1967. Production from the Prudhoe Bay field and other fields began in 1977 and at one point comprised 20% of all U.S. oil production. The state's oil output peaked at 2 million barrels per day in 1988. Since 2003, Alaska's annual oil production has slowly declined as the state's oil fields have matured. There are, however, still large areas of the state that remain unexplored for oil.
The oil and natural gas industry plays a special role in Alaska's economy. Because Alaska's oil and gas industry revenues fund most of the state government, it's the only state in the U.S. that does not have a state sales tax or a personal income tax. Additionally, since 1982, every eligible Alaskan resident has received an annual dividend based on the value of oil royalty revenue in the Alaska Permanent Fund. Currently, most of the oil produced in Alaska is transported south via tankers to refineries in Washington and California. Alaska is the 13th-lowest state by total petroleum demand, but it still has the second-highest per capita petroleum consumption in the U.S.
5. Colorado
Colorado is the fifth-largest producer of crude oil, with 82% of its production originating in Weld County. In 2020, as a result of new horizontal drilling and hydraulic fracturing technologies, the state produced about four times more crude oil than it did in 2010. The majority of oil production in the Centennial State comes from the Niobrara Shale formation, which is located in the Denver-Julesburg Basin in northeastern Colorado. The Wattenberg field, much of which is in Weld County, is one of the top ten U.S. oil field based on proved oil reserves.
Though its mining as well as its oil and gas industries are rather energy intensive, Colorado's energy consumption per dollar of its GDP is smaller compared to around four-fifths of the other 31 oil-producing states. In spite of this, demand in Colorado for refined petroleum products is approximately 3 times more than its refining capacity. As oil production from the Niobrara Shale continues to increase and exceed local refining capacity, additional pipelines are being constructed or repurposed to transport Colorado crude oil to out-of-state refineries. Several petroleum product pipelines from nearby states, mainly Wyoming, Texas, and Kansas, in addition to barrels brought in by rail and truck, help supply the Colorado market.
6. Oklahoma
Located in the heart of the U.S. Mid-Continent oil region, Oklahoma comes in sixth in crude oil production. The oil industry in the Sooner State has a long and storied history; Nellie Johnstone Number One, located near Bartlesville, was the first commercially productive oil well in Oklahoma. This well kicked off the beginning of an oil boom in 1897. Oklahoma was also where J. Paul Getty got his start in the oil business in the early 1900s. Getty later went on to run the Getty Oil Company and became one of the first billionaires in the U.S.
Oklahoma produces nearly three times as much energy as it consumes. Its industrial sector, which includes the energy-intensive crude oil and natural gas industries, accounts for roughly two-fifths of the state's end-use energy consumption, while its transportation sector accounts for almost one-fourth. Much of the energy produced in Oklahoma, including petroleum, is transported to other states by interstate pipelines or high-voltage transmission lines. That said, Oklahoma's per capita petroleum consumption is still greater compared to nearly four-fifths of the rest of the U.S.
Out of the 32 states that produce oil, the five biggest crude producers in the U.S. as of 2020 were Texas, New Mexico, North Dakota, Alaska, and Colorado.
According to the EIA, the five biggest crude producers as of 2022 were the U.S., Saudi Arabia, Russia, Canada, and China. However, the United States becomes the largest global producer when you include liquid fuel from natural gases and biofuels with oil production.
Houston, Texas, is considered the Energy Capital of the World because it employs nearly one-third of U.S. oil and gas extraction jobs and is home to 4,700 energy-related firms.
The Bottom Line
A handful of states are responsible for the bulk of U.S. domestic oil production, and these states often have a long history with the oil industry, dating back a century or more. For as long as the world continues to heavily rely on oil (and for as long as oil lies beneath U.S. soil), these six states may be able to count on big profits from the oil fields for years to come. However, as public demand continues to increase for greener, more renewable energy sources to mitigate the effects of global climate change, these states may also find themselves in a difficult spot should these nonrenewable resources prove to no longer be viable in the near future.
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