It is very tough to get accurate numbers on global oil production since OPEC chooses not to release any data. However, there are numerous analysts who resort to things like counting tankers and keeping track of the amount of oil off loaded at any given port.

The general consensus is that production capacity was approaching 88 million barrels per day as of August 1st 2008. Different factors impact this number on a daily basis as fires breakout, equipment breaks down or terrorists attack.

For instance Iraq had almost completely ceased production due to damage from terrorist attacks, old and dilapidated equipment and the shortage of workers willing to risk their life to work. That production is slowly being brought back online and now is about 1.5 mbpd.

Production from the North Sea dropped over -10% due to late life production problems and normal production declines.

With production at 88 mbpd it gives us a reasonable view of the current rate of demand growth. According to BP production for all of 2003 averaged 76.7 million barrels per day. (MBPD) According to the IEA 2007 production averaged 85.7 MBPD. This rapid increase in demand is due mostly to the rapidly growing economies of Brazil, India and China. However, the worlds population stood at 6 billion in 1999 and is expected to pass 7 billion in 2012. Adding a billion people in a little more than a decade is a monstrous increase in demand. As those new people reach driving age another demand explosion will occur.

There is also the problem of light vs sour crude. Most of the excess OPEC production capacity is heavy sour crude. This is not desirable as it is harder to refine and sells at a steep discount to the light sweet crude. Very few refineries can refine the sour crude. Having 10 mbpd of excess sour crude production is misleading since nobody wants it. It is like pulling into the filling station to fill up on unleaded gas. If unleaded is $3 a gallon and diesel is 25 cents it makes no difference. You can't use the diesel even if they were giving it away.

That is the problem in a nutshell. It makes no difference how much oil everyone says is available or how much demand everyone says exists. If pre recession excess production was only 500,000 bbls at $140 a bbl then there is no additional oil going to show up as demand increases when the recession is over. If they can't produce it at historical high prices then it is not there. We were fortunate to have a flurry of new projects coming online in 2008-2009 that added more than 6 mbpd to the total but depletion is running about 4.5% according to the IEA and that is an annual drain of about 4 mbpd. Unfortunately there are no big projects on the horizon after 2010. The new Brazil discovery will take years to produce oil in any quantity and eventual production is only expected to be 1.5 mbpd. That is roughly one third of what we lose to depletion every year.

How does this impact us? It means oil prices are going higher and anyone not invested in the right oil stocks is going to be pouring hard earned money into their gas tanks with no hope for the future. The choice is yours. You can cringe with every price tick higher or celebrate with every new high.