Nearly everyone will admit that continuing oil shortages and that high (above $100 a barrel) oil prices would be devastating to the prospects for economic recovery and that persisting very high (say above $200 a barrel) oil prices would send the U.S. and many other economies into a deep, long-lasting depression. The problem is that few are willing to consider seriously the accumulating evidence that increasing oil prices and eventually oil shortages within the next few years are as inevitable as the sunrise. Most of us have no thoughts about the issue other than the current price of a gallon of gas. Among those who appreciate that the world’s petroleum resources are finite, few understand the proximity of the crisis.
So where do we stand in mid-July 2010? While, the U.S. and OECD economies may not be doing so well, the global demand for oil has recovered nicely. After taking a two-year 3 percent dip in obeisance to the economic downturn, global oil consumption is now reported to be back in the vicinity of its 2008 high of 86.6 million barrels a day (b/d) for 2010. While U.S. demand is down a million barrels a day or so, demand from China and India are up more than enough to offset what is called “weak” US and European consumption. The International Energy Agency (IEA) tells us that it currently expects world demand to increase by 1.3 million b/d next year to a new annual high of 87.8 million b/d.
As nobody who carefully watches global oil production expects it to increase in coming years, we are left with “total productive capacity” which is currently estimated by the IEA to be 89.7 million b/d. This is about 3 million b/d above what we are currently using – maybe. Most of this spare capacity is supposed to be in Saudi Arabia; a land of eternal optimism where oil reserves never go down no matter how much is pumped up and sold. Many are skeptical that all of this “spare capacity” is really ready-to-go, reasonable quality, sustainable, production capacity. If not we are in worse shape than we believe.
Article from retired CIA analyst, Tom Whipple continued here.