How much oil is there really?

By Slate.com

What is the "right" price for a barrel of oil?

Japan's oil minister has said, based on fundamentals, that the price of crude should be $60 a barrel, not the $130 to $140 we see today.

During congressional testimony, five oil-industry CEOs each gave estimates of where oil "ought" to be, with results ranging from $35 to $65 a barrel up to $90.

Even the implacable Saudis are reportedly about to increase production by half a million barrels a day, a sign that they are concerned that the current price is too high.

Yet BP's (BP, news, msgs) chief recently said current price levels are warranted, and the oil bulls at Goldman Sachs forecast a "super spike" to $150 to $200 a barrel.

How can presumed experts be so divided? Because the data on oil stink.

A strategic resource

Think of the host of financial and economic statistics available to you every day: stock prices, unemployment data, company results, foreign exchange prices, GDP growth rates, etc. Market information is precise. Government statistics, while a little fuzzier, are complied and computed in a generally consistent fashion.

But oil is in a completely different category: It's a strategic resource bought and sold internationally. Many countries, either by indifference or design, simply don't provide reliable information.

Price is a result of both demand and supply; The Wall Street Journal recently explained why it's difficult to get a handle on demand (subscription required). The supply side is just as tricky.

The International Energy Agency, a prime source of oil-related information, was caught off guard by the surge in oil prices, so it decided it needed to get a better grip on capacity. The IEA is only partway through a survey of the world's biggest oil fields, yet says it expects to show a significant reduction in estimated reserves.

But even when concluded, this project will be far from reliable. For starters, OPEC, which is estimated to control two-thirds of the oil reserves and to provide 36% of oil production worldwide, is largely unresponsive to IEA inquiries.

And cooperation doesn't always translate into insight. For instance, Iraq recently claimed it has as much as 350 billion barrels of oil, triple its proven reserves and more than even oil kingpin Saudi Arabia has. Is this claim completely crazy?

No one knows for sure; Iraq is relatively unexplored, with only 2,000 oil wells versus more than 1 million in Texas.

Here's how arcane the oil guessing game can get. Saudi's Ghawar oil field is the world's largest; it's been pumping out oil since 1951 and holds 7% of the world's proven reserves. Overall, Saudi production has been falling since 2005, yet the number of rigs in use has tripled since 2004.

Why is that? Some analysts believe the increased rigs are intended to compensate for declining production from Ghawar. Others argue that the Saudis are operating strategically, shutting their most-productive wells as prices rise and opening smaller wells to better manage supply.

Experts have tried to come up with more independent and definitive answers. The Saudis use water injection to increase oil recovery. Some analyses from the northern part of Ghawar conclude that the water content has risen from 20% in the 1940s to 50% now, supposedly a sign that yields are about to fall dramatically.

Continued: 'Junk science'

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