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Oil Supply and Demand - 4/2/08

The U.S. currently consumes about 21 million barrels of oil a day. Domestic crude oil is just over 5 million barrels per day, leaving the reliance on imported oil of 16 million barrels a day. The U.S. transportations fuel is supplemented with 3% to 4% ethanol that comes from distilling about half the U.S. corn crop. That is why your grocery bill is skyrocketing.

Domestic production of oil output is declining and depleting. Everywhere from the Gulf of Mexico to the North Slope of Alaska output is falling.

New discoveries of oil cannot keep up with depletion of older oil fields. By 2025, U.S. oil production will be a fraction of its current level and imports of oil will likely decline. Oil producing countries will lack the product to export. A fast growing internal demand will be a factor. Gasoline consumption in Saudi Arabia, Russia, Iran, and Venezuela is soaring, making for less oil to export. Russia announced a plateau in oil output. Mexico’s Cantarell field has an annual depletion rate of 8% or more.

So, in 2025 will the U.S. produce enough oil for itself? No, it won’t be there. How about the imports we have relied on all these years. No, it won’t be available.

What will happen when there is less oil? U.S. demand for oil will fall. This will be a very painful period for every American. The government will likely discourage using liquid fuel from charging fees to higher taxes. Rationing in one form or another will likely be required as supply is depleted.

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