It appeared in the news this week almost as a footnote: global oil production has fallen below oil consumption. This was the assessment of new monthly reports from BP and OPEC, and the reports confirm data coming from other sources.
BP notes that fuel consumption in 2010 was higher than oil production. A significant part of the difference comes from the use of plant-based fuel, but plants provide only 2 percent of global fuels. The rest of the shortfall, then, must show up as a decline in inventories. Separate reports show that global fuel inventories have fallen by more than half since 2009.
In its report, OPEC looks at the prospects for 2011. It predicts that the demand for oil is likely to exceed the production capacity for the year as a whole, perhaps by only a little bit, but more likely by 1 or 2 percent. If 1 or 2 percent does not sound like a lot, look at it this way: the world might have only enough oil to get through December 26, with none left for the last five days of the year.
The headline from the BP report was that known oil reserves increased during 2010. The estimated increase, though, was vanishingly small, only enough oil for 2 hours, and one has to wonder if some of the estimates were bumped up in order to report that increase. Oil consumption, meanwhile, increased by 3 percent in 2010 compared to 2009. The OPEC report says that oil consumption could increase another 2 percent in 2011.
Oil inventories, then, will decline, and oil prices will go up. Oil is not easy to replace in the short run, so prices can go up a lot for a small shortfall.