Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
2. Crude oil supply.
a. Although non-OPEC sources of crude oil have increased, the
Middle East still has the largest crude oil reserve and production
area in the world, and Saudi Arabia has the largest proven crude
oil reserves.
Crude oil is found throughout the world, but it is not evenly concentrated in every region.
The Middle East has by far the largest crude oil reserve and production area in the world,
followed by North America, the North Sea region, and the area controlled by the former Soviet
Union (FSU) countries. 21 Saudi Arabia is the world’s largest crude oil producer and has the
largest proven crude oil reserves. 22
OPEC’s share of world crude oil production has declined significantly since the oil
embargo of 1973. 23 Between 1974 and 2003, non-OPEC production – that is, crude oil
production in countries that are not members of OPEC – increased from 28.6 million bpd to 48.9
million bpd. As a result, OPEC’s share of world production has fallen from 52 percent in 1974
to 38 percent in 2003. 24 Although OPEC’s total crude oil production in 2003 was comparable to
that in 1974 – 30.5 million bpd in 2003 and 30.8 million bpd in 1974 – the 2003 production
represented a smaller proportion of world crude oil production than it did in 1974. 25 Moreover,
OPEC’s crude oil production varied over the years between 1974-2003, both in reaction to
differences in crude oil demand and as part of OPEC efforts to set the world price of crude.
New technologies have lowered the cost both of finding new sources of crude oil and of
extracting crude oil from new and existing oil fields. For example, advances in seismic
technology have reduced the cost of finding new oil reservoirs and have lowered extraction costs
by reducing the number of dry holes drilled. Also, advances in directional and horizontal drilling
reduce costs by using fewer wells to extract oil from a reservoir, while new production platforms
have increased access to crude oil in deeper waters. 26
As other countries’ crude oil production has increased, U.S. crude oil production has
declined. Over the last 25 years, U.S. crude oil reserves have been depleted. This has reduced
the ability of the domestic crude oil industry to satisfy domestic demand. Figure 2-3 shows that
domestic crude oil output fell by roughly one-third between 1978 and 2004. As a result, refiners
in the U.S. now import more than 60 percent of their crude from foreign sources, up from 43
percent in 1978. 27
20
FEDERAL TRADE COMMISSION, JUNE 2005