Are We Running Out of Oil?

Policy Backgrounders | Energy and Natural Resources

No. 159
Wednesday, January 29, 2003
by David Deming

History of Oil Prognostication

Figure I - World Price of Oil 1968 - 2001

The history of the petroleum industry is punctuated by periodic claims that the supply will be exhausted, followed by the discovery of new oil fields and the development of technologies for recovering additional supplies. For instance:

  • Before the first U.S. oil well was drilled in Pennsylvania in 1859, petroleum supplies were limited to crude oil that oozed to the surface. In 1855, an advertisement for Kier's Rock Oil advised consumers to "hurry, before this wonderful product is depleted from Nature's laboratory."1
  • In 1874, the state geologist of Pennsylvania, the nation's leading oil-producing state, estimated that only enough U.S. oil remained to keep the nation's kerosene lamps burning for four years.2

"Warnings of U.S. oil shortages were made before the first well was drilled in 1859."

Seven such oil shortage scares occurred before 1950.3 As a writer in the Oil Trade Journal noted in 1918: At regularly recurring intervals in the quarter of a century that I have been following the ins and outs of the oil business[,] there has always arisen the bugaboo of an approaching oil famine, with plenty of individuals ready to prove that the commercial supply of crude oil would become exhausted within a given time - usually only a few years distant.4

1973 Oil Embargo.

"After the revolution in Iran, oil prices returned to the long-term average of $10 to $20 a barrel, in real terms."

The 1973 Arab oil embargo gave rise to renewed claims that the world's oil supply would be exhausted shortly. "The Oil Crisis: This Time the Wolf Is Here," warned an article in the influential journal Foreign Affairs.5 Geologists had cried wolf many times, acknowledged the authors of a respected and widely used textbook on economic geology in 1981; "finally, however, the wolves are with us." The authors predicted that the United States was entering an incipient 125-year-long "energy gap," projected to be at its worst shortly after the year 2000.6

The predictions of the 1970s were followed in a few years by a glut of cheap oil:

  • The long-term inflation-adjusted price of oil from 1880 through 1970 averaged $10 to $20 a barrel.7
  • The price of oil soared to over $50 a barrel in inflation-adjusted 1996 U.S. dollars following the 1979 political revolution in Iran.8 [See Figure I.]
  • But by 1986, inflation-adjusted oil prices had collapsed to one-third their 1980 peak.9

When projected crises failed to occur, doomsayers moved their predictions forward by a few years and published again in more visible and prestigious journals:

"When projected shortages failed to appear, doomsayers made new predictions."

  • In 1989, one expert forecast that world oil production would peak that very year and oil prices would reach $50 a barrel by 1994.10
  • In 1995, a respected geologist predicted in World Oil that petroleum production would peak in 1996, and after 1999 major increases in crude oil prices would have dire consequences. He warned that "[m]any of the world's developed societies may look more like today's Russia than the U.S."11
  • A 1998 Scientific American article entitled "The End of Cheap Oil" predicted that world oil production would peak in 2002 and warned that "what our society does face, and soon, is the end of the abundant and cheap oil on which all industrial nations depend."12
Figure II - Price of Gasoline

Similar admonitions were published in the two most influential scientific journals in the world, Nature and Science. A 1998 article in Science was titled "The Next Oil Crisis Looms Large - and Perhaps Close."13 A 1999 Nature article was subtitled "[A] permanent decline in global oil production rate is virtually certain to begin within 20 years."14

1990s Oil Glut.

However, rather than falling, world oil production continued to increase throughout the 1990s. Prices have not skyrocketed, suggesting that oil is not becoming more scarce:

  • Oil prices were generally stable at $20 to $30 a barrel throughout the 1990s. [See Figure I.]
  • In 2001, oil prices fell to a 30-year low after adjusting for inflation.
  • Furthermore, the inflation-adjusted retail price of gasoline, one of the most important derivatives of oil, fell to historic lows in the past few years. [See Figure II.]

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