2012-04-01

Global Oil Risks in the Early 21st Century

1. Introduction

An economy needs energy to produce goods and deliver services and the size of an economy is highly correlated with how much energy it uses (Brown et al., 2010a, Warr and Ayers, 2010). Oil has been a key element of the growing economy. Since 1845, oil production has increased from virtually nothing to approximately 86 million barrels per day (Mb/d) today (IEA, 2010), which has permitted living standards to increase around the world. In 2004 oil production growth stopped while energy hungry and growing countries like China and India continued increasing their demand. A global price spike was the result, which was closely followed by a price crash. Since 2004 world oil production has remained within 5% of its peak despite historically high prices (see Figure 1).

Figure 1. Oil production stopped growing in 2004 while demand continued to increase. The result was a global oil price spike that contributed to the subsequent economic contraction. Liquid fuels include crude oil, lease condensate, natural gas plant liquids, other liquids, and refinery processing gains and losses as defined by the EIA. Source: Hirsch (2010)

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