We’re running low on oil

The world’s petroleum consumption and production are just about balanced now, at around 86.5 million barrels per day (mbpd). Unlike in 1973-1982, when artificial supply constraints boosted prices, now the taps are mostly all wide open; but production levels are stagnant, despite record prices. The graph lines of consumption and production have relentlessly converged since the early 1990s, causing today’s nasty prices. Unfortunately, monthly world production apparently peaked around June 2006 and has not, despite high prices, surpassed those levels since. Could it? Maybe, but as time elapses, Peak Oil theorists (who tell us that world production will peak due to geologic limits, then start to decline) increasingly appear to be on target.

I wish it weren’t so, but it’s Economics 101– static supply plus rising world demand equals higher prices. This year, China will produce around 10.5 million new cars, most going to first time car owners. Imagine this one impact on demand. India’s a similar case. Oil exporters’ domestic consumption also rises, which leaves Russia and Mexico, among others, with less oil to export. In fact, Mexico’s president recently indicated in a speech that exports could cease by 2012.

The United States consumes around 20 mbpd, or 24 percent of the world’s total daily production of petroleum, and about half is imported. While discretionary driving is down, a high demand for fuel is still built into our economy; we can’t cut consumption rapidly without causing economic dislocation and hardship (e.g., cold homes or empty shelves this winter) . However you slice it, with just 4 percent of the world’s population, we consume 24 percent of the liquid fossil fuels. I leave the ethics of this to your individual consciences.

Be skeptical of any discussion of oil prices that fails to mention depletion. In the end, geology, not economics, determines the amount of oil that can be supplied.

Daily Record