In general, market prices of crude oil are forecasted by the consumption demand of oil and the capacity to supply oil that meets the economy growth. However, I would rather start from the available world oil reserves. According to the Annual Statistic Bulletin (2010/2011 edition) of the Organization of the Petroleum Exporting Countries, OPEC share of proven world crude oil reserves comprised 1193 bn. barrels id. est. 81.33% of total proven crude oil reserves and Non-OPEC countries possessed 274 bn. barrels of crude oil reserves that amounted 18.67% of total proven crude oil reserves. Statistical data represented at the OPEC website shows that Iran is the third largest oil reserves country in the world with the 151.17 bn. barrels of proven crude oil. Hence, the rest of the world strongly depends on oil produced by the OPEC unless we compare proven oil reserves versus recoverable and unconventional world oil reserves.
According to the U.S. Geological Survey World Petroleum Assessment 2000 which was cited in 2003 by Bill Kovarik, Ph.D formerly a journalist and editor of publications such as Energy Resources and Technology and Latin American Energy Report (Professor of Communication at Radford University, Virginia Tech and the University of Western Ontario), identified total world reserves comprised 1103.2 bn barrels and recoverable reserves presented additionally 2272.5 bn barrels. The more accurate pictures of proven versus recoverable an unconventional world oil reserve are available below.
Picture 1. Proven oil reserves [1]
Picture 2. Additional Figures from the US Geological Survey those represent recoverable and unconventional oil reserves. [2]
Even though it is difficult to estimate the conventional oil reserves they are proven as following. Petroleum engineers estimate the costs of drilling and connecting new wells into a reservoir as well as calculate operating expenses per well and cost per barrel extracted. The initial daily output of oil declines and the cost of extraction rises. When the costs become equal to the market value of output, production reaches its “economic limit” and extraction stops. The estimated aggregated output of the new wells over time is known as the “proved reserves added” or “reserves booked”.
However, beside conventional reserves, petroleum may be refined from Heavy Oil reserves, Tar Sands or Oil Shale. Consequently, dependence on oil supply from the Middle East may be reduced. Moreover, the head of the world's largest oil company, Saudi Aramco, in 2006 acknowledged:
“We are looking at more than four and a half trillion barrels of potentially recoverable oil. That number translates into 140 years of oil at current rates of consumption, or to put it another way, the world has only consumed about 18 percent of its conventional oil potential. That fact alone should discredit the argument that peak oil is imminent and put our minds at ease concerning future petrol supplies.”
Considering the cost of oil production which was obtained from traders and industry analysts and published by Reuters in July 28, 2009, Saudi Arabian crude oil is cheapest because of its location near the surface and the size of fields, which allow economies of scale. The operating cost (excluding capital expenditures) of extracting a barrel was estimated around $1-2 and the total cost including capital expenditures comprised $4-6 per barrel. Similar total costs of oil extraction are estimated in Iraq and United Arab Emirates. Oil Extraction from mature and deep water offshore fields is more expensive. It was estimated that production in ultra-deep water fields in Nigeria reached $30 a barrel compared with onshore costs of around $15. The other comparison by the region: operating and capital costs in Algeria, Iran, Libya, Oman and Qatar were estimated around $10-15 per barrel, in Kazakhstan around $10-18, in Venezuela, where fields tend to be mature and small, costs reached $20-30, in the mature British North Sea, where the remaining oil is difficult to access, the costs could be around $30-50.
According the International Energy Agency World Energy Outlook 2008 the statistical data of estimated production costs were the following:
So, if estimated recoverable and unconventional world oil reserves are twice as large as proven oil reserves and if it is possible to extract oil under the $60 per barrel how much consumer should pay for the crude oil? According to the World Oil Outlook 2011, prepared by the OPEC, it is assumed that prices will stay in the range of $85-95 per barrel for the next decade and will reach $133 per barrel by 2035. Different world events may significantly affect the crude oil prices as it is showed in the picture 3. However, high oil price volatility also depends on the futures speculation.
Picture 3. World Events and Crude Oil Prices 2007 - May 20, 2011Recessions and Oil Prices [4]
Notes:
[1] Peak Oil is wrong. THE OIL RESERVE FALLACY Proven reserves are not a measure of future supply By Bill Koyarik http://www.radford.edu/~wkovarik/oil/
[2] Peak Oil is wrong. THE OIL RESERVE FALLACY Proven reserves are not a measure of future supply By Bill Koyarik http://www.radford.edu/~wkovarik/oil/
[3] "The Impact of Upstream Technological Advances on Future Oil Supply" - Mr. Abdallah S. Jum'ah, President & Chief Executive Officer, Saudi Aramco, address to OPEC, Vienna, Austria, Sept. 13, 2006
[4] Oil Price History and Analysis http://www.wtrg.com/prices.htm
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