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Friday, 24 March, 2000, 18:58 GMT
Q&A: The oil business
A finite resource but a backbone of the world economy
What are the world's oil resources?

The world has about 1,000 billion barrels of proven crude oil reserves with the largest amounts to be found under Saudi Arabia, Iraq, United Arab Emirates, Kuwait and Iran in the Gulf.

Venezuela has the next largest reserves, while in North America there are major deposits in all of Mexico, the US and Canada.
Major oil producers
Saudi Arabia
(8 million)
United States
(6.5 million)
(5.9 million)
(3.5 million)
(3.5 million)
Russia and China also have large proven reserves but, along with the US, they are pumping at rates which will cease to be sustainable far sooner than their Middle East counterparts. In Central Asia, Kazakhstan has large oil reserves which have not been fully exploited to date.

Africa has significant deposits in Libya, Nigeria and Algeria, while large North Sea deposits are exploited mainly by Norway.

Are we running out of oil?

Oil is a finite resource which could eventually run out. World consumption today is about 70 million barrels a day and oil producers expect this to rise to 100 million barrels by 2020.

The Organisation of Petroleum Exporting Countries (Opec) says its reserves are sufficient to last another 80 years at the current rate of production.

What is more likely is that there will always be oil around, it will just become harder to extract, of poorer quality and more expensive.

That is why many energy companies are currently investing large sums to find alternative sources of energy to reduce the world's reliance on oil.

What is the significance of Opec?

The 11 members of the Opec produce about 40% of the world's crude oil.
Main Opec reserves
Saudi Arabia - 260
Iraq - 110
UAE - 95
Kuwait - 95
Iran - 92
Venezuela - 66
Non-Opec reserves
Russia - 49
Mexico - 27
China - 24
United States - 23
Kazakhstan - 14
Norway - 10
(billion barrels)
However, non-Opec countries consume large amounts of the oil they produce, so about 60% of the oil traded internationally comes from Opec countries.

Opec's share of world oil production has been much higher in the past and is set to rise considerably in the coming decades, as member countries hold more than 75% of the world's proven oil reserves.

This is partly the result of the tendency outside Opec producers to pump oil at full capacity while members subscribe to a quota system to regulate market prices.

What causes fluctuations in oil price?

Events on the international stage can create a climate of uncertainty which can lead to rises in oil prices. More important - like any market - is the equation between how much oil is pumped by the producers and the demand for oil among consumers.

Politics have also played a part in the past, as in 1973 when Opec members - led by Saudi Arabia - cut oil supply to punish the West for supporting Israel in the Arab-Israeli war. The move caused oil to jump from $3 a barrel to $12, causing economic crises in the developed world which had come to rely on cheap energy.

Since then, Opec's share of the oil market has dropped because more oilfields outside the organisation have come on stream. For many years Opec was also unsuccessful in getting members to stick to their own quotas.

Higher prices since March 1999 came about as Opec members agreed to cut their output - and stuck to quotas - to address an oil glut caused by a drop in demand after the Asian financial crisis.

The oil cartel was joined by a number of other exporters, notably Mexico, Norway and Oman, increasing the Opec-plus group's share of world output to 56%.

Who benefits from high oil prices?

The current bouyancy of oil prices offers most to cash-strapped non-Opec countries like Russia. It is unrestricted by Opec quotas yet reaps the rewards of high prices created by Opec.

Having seen the cycle of oil boom and bust over the years, Opec itself now has "market stability" as its watchword.

An example of this ethos was seen in 1990 when Iraq invaded Kuwait, threatening to send oil prices rocketing. Prices did rise amid the uncertainty, but Opec also agreed to raise quotas to replace the 3 million barrel per day removed from the market.

On the other hand, the spikes of 1973 and in the 1980s, may have brought prosperity, particularly in the Gulf oil sheikhdoms, but they also reduced demand and disrupted investment in oil projects in the medium term.

Ironically, it tends to be non-Opec countries which are hurt more by extremely low oil prices. Ease of access and quality mean that Middle Eastern oil, in particular, is the most profitable and cheapest to produce in the world.

Can the world wean itself off oil?

It will have to eventually, but oil is too important on too many levels for that to happen soon.

Experts say the world's energy future could lie in renewable sources like wave, solar, hydro-electric and wind power, and fuel cells, which release energy from hydro-carbons chemically rather then through combustion.

But while oil remains an available and relatively inexpensive resource, it will no doubt remain the backbone of economic power and an political influence in the world.

Analysis of the oil market, OPEC, and the alternatives

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