Commentary by Eric Wilder – The Energy Information Administration bureau of the Department of Energy released a sobering projection today concerning the future price of crude oil. Only one year ago the EIA predicted crude oil would only average $31 per barrel, adjusted to inflation, by the year 2025. They now predict the price of oil will remain around $50 per barrel, adjusted for inflation, for years to come.
What caused the EIA’s radical increase in the future price of oil? It is a fact that demand for crude oil is increasing yearly. Rapidly developing nations led by China, and including Pakistan and India, are demanding a bigger share of the world’s daily production of oil. Even the EIA projects a demand of 111 million barrels of oil per day by the year 2025. Some, myself included, think the production of crude oil has peaked and will never reach 111 million barrels per day.
Consider this: crude oil production peaked in Oklahoma in the 1920’s and in the U.S. in the 1970’s. Since 1974, the U.S. has produced less crude oil every year. The last giant oil field discovered in the U.S. was Prudhoe Bay, a field now in the latter stages of maturity. The world’s five largest oil fields were all found prior to the mid 1980’s. No new super giant oil field has been found in the last decade that will replace the oil we are presently consuming.
One more fact: the giant Oklahoma City Field, once the largest in the world, will ultimately produce less than one billion barrels of oil. What does that mean? It means that the former largest oil field in the world would only supply the world’s need for about 1/3 of a year, and that’s at today’s rate of consumption.
Today’s EIA revised upward price projection is a welcome breath of fresh air for an agency and country that has previously acted like the proverbial ostrich. There’s still a problem. Faced with the facts of increasing world demand and virtually static supply, blithely proclaiming that the world’s daily production of oil in 2025 will meet the demand of 111 million barrels is flying in the face of reality.
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