Oil reserves may be lower than producers claim
As OPEC raises oil output by 2 mm bpd as of July 1 and another 500,000 bpd as of August 1 to stop the upward spiral
in oil prices on the international market, the reserves claimed by many leading oil producers are being challenged.
The lower reserves preclude the possibility of oil dropping below the $ 35-$ 36 range.
According to Dr V. Anantha-Nageswaran, director of global economics and asset allocations at financial services conglomerate Credit Suisse, the sudden jump in the reserves announced by several oil-producing countries in the late 1980s is "puzzling."
"It was during this period that OPEC introduced the quota system and the same was linked directly to each country's reserves," Anantha-Nageswaran said.
This should have prompted these countries to inflate their reserves to grab a larger chunk of output quotas, he said.
He questions the logic behind oil reserves jumping three to four times between 1988 and 1990.
For example, in 1987, Iran's reserves were 48.8 bn barrels. In 1988 they surged to 92.9 bn barrels and remained almost unchanged until 1998 when they dropped to 89.7 bn barrels. Likewise, Iraq's reserves shot up from 47.1 bn barrels in 1987 to 100 bn barrels in 1988.
In Saudi Arabia, the jump was from 170 bn barrels to 257.5 bn barrels from 1989 to 1990. For Venezuela, reserves soared from 25 bn barrels in 1987 to 56.3 bn barrels the next year. All this happened between 1987 and 1990.
Since new discoveries do not match production, the reserves are unlikely to increase the way these countries have
been claiming, he said. Though OPEC succeeded in stopping the price rise, it is going to be a short-term phenomenon,
he said. Moreover, the floor price of oil has risen and it is unlikely to fall below the $ 35-$ 36 range.
"It is not the West alone that is going to drive the oil price in the international market. Asia's growing economies such as China, India and Malaysia, where energy intensity is growing, will have a substantial say in the consumption of world oil output," he said.
Statistics show that close to two-thirds of the oil consumption in the Asia Pacific region last year was met through
imports. Anantha-Nageswaran said global oil production is said to be close to peaking. The quantity of oil that can
be produced by OPEC or non-OPEC countries tends to be slightly exaggerated.
The cost of extraction is increasing, especially in Saudi Arabian fields, even though recovery efficiencies have improved.