TOTAL AMOUNT OF WORLD OIL RESERVES REMAINING

Total Amount of World Oil Reserves Remaining

Total Amount of World Oil Reserves Remaining

Introduction

The world oil market has undergone tremendous change in the past three decades. In the 1960s, the price of oil was fixed by the major international oil companies. The early 1970s saw the transfer of property rights from these multinationals to the host countries, which was the start of a new era in the oil industry. Middle Eastern countries, through the Organization of the Petroleum Exporting Countries (OPEC), were key players in the transformation of the market since they owned the bulk of world crude oil reserves. The series of oil price increases in 1973-1974 was a hallmark period for the oil market because it coincided with the transfer of property rights to the host countries from the major oil companies that had operated the industry up to that time.

Following those events, the determination of oil prices were in the hands of OPEC, which carried out this function by setting an official selling price, and leaving member countries to adjust their selling price in relation to this marker. Also the marker crude oil price was usually accompanied by quota allocations to the member countries. The system worked relatively well until the early 1980s, eventually falling victim to its own success (Okogu, 2003).

Recent Developments and Outlook in Oil Markets

Global demand for oil is surging. Supplies are tight and geopolitical jitters are sending daily shock waves through the market. As a result oil prices are hitting record highs. OPEC's recent decision to cut production demonstrated that the world's biggest oil cartel will defend higher oil prices in spite of concern about the impact of $40 a barrel on economies. OPEC has made the decision to cut the excess output of 1 million barrels a day above the official quota of 27 million barrels a day.

They also raised the prospect of further production cuts next year. The latest move is expected to have two main consequences: consumers can expect oil prices to remain well above the price in the low $20s range seen throughout most of the 1990s, and that the price OPEC is ready to defend is well above the long-term price of $20-$25. In the past 21 years, oil price has only traveled above the $40 level in times of war - the lead-up to the Gulf War in 1990 and the Iraq war last year. Now a $40 price looks familiar. Demand has grown at its fastest pace in 28 years.

This year's increase in demand has caught the entire oil supply chain by surprise, forcing oil tanker rates to rise to record levels because of the lack of tanker availability. The increase has also created bottlenecks in the global refinery industry following two decades of overcapacity. Both of these factors have contributed to the $10 rise in oil prices this year above the 2003 average. It has also swallowed up most of the spare production capacity OPEC has carried for ...