Crude Oil Future

Crude oil - the term for oil extracted straight from the ground and also known as ‘fossil fuel’ - is arguably one of the most important commodities in the world order today. Major events in the world, whether of an economic, political or social nature, have been attributed to the events surrounding this commodity. The future of crude oil in particular and petroleum in general, as a fuel source remains a bit controversial. The basic problem lies with its non-renewable nature, which implies that there is no way wherein crude oil once used can be recycled back into the system and used again. Therefore the supply is bund to run out in the longer run.

The American news publication, USA Today news reported in a 2004 news piece that the world was left with about forty years of petroleum inside the earth; a sure chilling piece of information. It is often argued that because the total quantity of petroleum is fixed, the ominous forecasts of the 70s have only been delayed, but not stalled forever. Another school of thought believes that the development of high end technology will ensure the generation of cheaper hydrocarbons, and that there is a presence of vast reaches of unconventional reserves of petroleum, like tar sands, oil shale, bitumen fields, etc that will permit a continued use of petroleum, with the American shale oil and the Canadian tar sands deposits having the potential to match existing deposits of liquid petroleum available internationally

The Hubbert Peak Theory:

The Hubbert peak theory or the Peak Oil Theory hypothesizes that the future production of petroleum (either for a worldwide production, whole countries, complete oil fields or even singular oil wells) will ultimately peak and then subsequently decline at a rate that is similar to the increase rate pre-peak even as these reserves get exhausted. A method to calculate the timing of the peak’s occurrence was also suggested. This was based on the present oil reserves, peak of past rates that were studied and the previous rates of production. The peak in such oil discoveries happened in 1965. Since 1980, every single year, the production of oil per year has exceeded the various oil discoveries.

M. King Hubbert, in 1956 accurately predicted a peaking of oil production by the USA around the year 971. As this happened, the surplus production capacity of the USA was lost. This led to an organization called the OPEC (Organization of the Petroleum Exporting Countries) gaining the facility to maneuver oil prices, resulting in the oil crises of 1973 and 1979.  Subsequently, most other nations have also experienced peaks. China, for example has stated that its two largest oil producing regions are in the decline. Mexico’s Pemex - the national oil company - has declared that their Cantarell Field, among the biggest offshore oil fields in the world, has peaked in the year 2006, and then in a decline of  14% per annum.

The non-transparency in regard to accounts of the global oil reserves makes any prediction of oil peak in a particular region a very difficult proposition. According to the OPEC, the proven reserves of crude oil in the world stand at a number greater than 1 trillion barrels, with the member countries of the OPEC accounting for about 78 % of the number.