What Are Oil Reserves?
Oil reserves are an estimate of the amount of crude oil located in a particular economic region with the potential of being extracted. Reserves are calculated based on a proven probable basis and oil pools situated in unattainable depths are not considered part of a nation's reserves.
- Oil reserves are the amount of crude oil a country or region has that can be extracted.
- Venezuela, Saudi Arabia, and Canada are the three leading countries with the most oil reserves.
- Industry leader BP plc estimates that there are 1.73 trillion barrels of oil reserves globally.
- Approximately 80% of the world’s oil reserves are in the Organization of the Petroleum Exporting Countries (OPEC).
- The Strategic Petroleum Reserve (SPR) is an emergency supply of crude oil that can be used to offset a severe oil supply shortage in the United States.
Understanding Oil Reserves
In its 2021 report, oil industry leader BP Plc estimates that there are 1.73 trillion barrels of oil reserves in the world. According to the British company's Statistical Review of World Energy report, Venezuela leads with 303.8 billion barrels in reserve. Saudi Arabia is second with 297.5 billion, Canada ranks third with 168.1 billion, and the U.S. ninth with 68.8 billion barrels.
|The World's Largest Oil Reserves By Country|
|Rank||Country||Oil Reserves (in billions of barrels)|
|8||United Arab Emirates||97.8|
Source: BP, plc.
The Organization of the Petroleum Exporting Countries (OPEC), however, concludes that 1.25 trillion barrels exist globally. The cartel estimates that 80.4% of global reserves are held by its members, including Venezuela, Saudi Arabia, Iran, Iraq, Kuwait, United Arab Emirates, and Libya.
Calculating Oil Reserves
BP’s Statistical Review of World Energy is one of the leading sources of energy market data and information, dating back several decades. Another source is the World Oil Review supplied by the Italian oil company ENI SpA.
Similar to BP's statistical review, ENI's publication provides details about global oil reserves. The Energy Information Administration (EIA) calculates U.S. oil reserves with information dating back to 1900.
One of the critical ratios analysts use to measure the longevity of reserves is the reserve-to-production ratio (R/P). The R/P estimates the number of years a reserve base will last at current annual production rates and is used by companies operating in the oil industry, as well as oil-producing countries.
This chart from BP reveals two significant trends in global oil reserves.
World's Reserves-to-Production (R/P) Ratios by Year
Source: BP, plc.
First and most obvious, it illustrates the massive increase in South and Central American oil reserves relative to production since 2006, when Brazil made some significant oil finds in its offshore pre-salt basins. BP currently estimates that the South and Central America region has enough oil reserves to last more than 150 years at current production levels.
The volume of oil reserves does not necessarily translate into production figures. For example, Venezuela's share of the overall oil production market has collapsed in recent years due to internal strife. According to the 2021 BP Statistical Review of World Energy, the South American nation accounted for just 0.6% of overall production volumes, despite having the world's largest oil reserves.
A downtrend also exists in Middle Eastern oil reserves relative to production. In the 1990s, Middle Eastern countries had R/P ratios of 100 years. Over the last 30 years, this ratio has fallen until the last several years while production rates fluctuate and reserves become harder to find. Reserves-to-production for the Middle East now stands at approximately 80 years.
A similar trend of a downward sloping R/P is happening in North America, which has aggressively increased production over the last several years. The reserve for North America is estimated at 30 years.
What Are the Components of an Oil Reserve?
Petroleum reserves and resources are hydrocarbon deposits predominantly occurring in subsurface geologic formations. Reserves can be reported in the context of a reservoir, field, petroleum basin, or country as a whole.
Why Are Oil Reserves Important to the United States?
The Strategic Petroleum Reserve (SPR) is an emergency supply of crude oil that can be used to offset a severe oil supply shortage. The SPR was created to provide the United States with crude oil in the event of a severe oil supply or economic disruption. Only the President of the United States can give permission to use it and maintaining the Strategic Petroleum Reserve is an important national security tool and the reserve is intended to serve as America’s insurance policy against a severe oil supply disruption or a severe economic disruption.
What Was the 1973 Oil Embargo?
An oil crisis began in October 1973 when the members of OPEC, led by Saudi Arabia, proclaimed an oil embargo, a ban on the trade of oil. The embargo was targeted at nations that had supported Israel during the Yom Kippur War and included Canada, Japan, the Netherlands, the United Kingdom, and the United States. By the end of the embargo in March 1974, the price of oil had risen nearly 300% and caused an oil crisis, or "shock", with many short- and long-term effects on global politics and the global economy.
The Bottom Line
Oil reserves are an estimate of the amount of crude oil located in a particular economic region with the potential of being extracted. The oil industry estimates that there are 1.73 trillion barrels of oil reserves in the world. In the United States, the Strategic Petroleum Reserve (SPR) is an emergency supply of crude oil that can be used to offset a severe oil supply shortage.
Society of Petroleum Engineers. "Standards Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information (Revised June 2019)," Page 16.
BP, plc. "bp Statistical Review of World Energy, 2021 | 70th Edition," Page 16.
Organization of the Petroleum Exporting Countries. "OPEC Share of World Crude Oil Reserves."
BP, plc. "Statistical Review of World Energy."
Eni. "World Energy Review 2021," Page 2.
U.S. Energy and Information Administration. "Petroleum & Other Liquids: U.S. Crude Oil Proved Reserves."
BP, plc. "Statistical Review of World Energy: Annex, Definitions and Explanatory Notes," Select "Reserves-to-Production (R/P) Ratio."
BP, plc. "bp Statistical Review of World Energy, 2021 | 70th Edition," Page 3.
Enverus. "Brazil Oil Production Data Analysis and Market Intelligence."
Istituto Affari Internazionali. "The Venezuelan Oil Industry Collapse: Economic, Social and Political Implications."
BP, plc. "bp Statistical Review of World Energy, 2021 | 70th Edition," Pages 16-18.
ScienceDirect. "Petroleum Reserve."
Independent Petroleum Association of America. "Why Draining America's Strategic Petroleum Reserve is Wrong."