Oil Reserves and Production

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The shortage between oil production and consumption worldwide has been increasing since the late 1990s. Generally a lack of supply does not appear to be due to a current acute lack of refining capacity; although refining capacity is more stretched than it was in the 1980s. Refining throughput accounted for 82% of total global refining capacity and actual crude production accounted for 89% of refinery capacity. Therefore, although new refinery capacity will need to come online in the near term to meet future demand, it is not a cause of current shortage concerns.

Most countries have oil reserves that can be mobilised to meet demand if supplies of oil are insufficient. Members of the European Union must have 90 day of reserves for the three main petroleum energy product categories and they must establish contingency plans, bodies and mandates to release the reserves in response to crisis market conditions through the Oil Supply Group. The US has the US Strategic Petroleum Reserve (SPR). Other countries have their own contingency reserves of oil. All OECD countries are obliged to hold a minimum of oil reserves to cover 90 days of net oil imports in public and private storage.

All of these countries don’t hold refined supplies of oil. Therefore, refining capacity is needed to utilise these supplies in a short period of time, which may be constrained especially if a disaster has occurred e.g. Hurricane Katrina or the last earthquake and tsunami in Japan. Furthermore, these countries are reluctant to use these stored reserves because they make the country extremely vulnerable to supply volatility and oil prices could rise further. Therefore to minimise the impact of oil supply shocks and ensure supply, make domestic production of unconventional oil more attractive, especially if oil prices are high.

The US mobilised its reserves in the first Iraq Gulf War (30 million barrels) and Hurricane Katrina (around 22 million barrels).

 

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