U.S. demand peaked in 2005 at 20.8 million barrels per day (b/d) and declined to 18.8 million b/d in 2011. Consumption is expected to remain below the 2005 level until 2035 .
Crude oil is an organic compound composed of hydrogen and carbon (i.e., a hydrocarbon). The hydrogen provides us with energy and the carbon is generally a waste product that is emitted into the air upon combustion. In order to be useful, crude oil must be refined through distillation and chemical processes. The refining process separates the hydrocarbon chains into different petroleum products. In addition to gasoline, some of the most common products are:
• Petroleum gas – like methane, butane and propane used for heating and cooking
• Kerosene – fuel for jet engines, tractors and some heaters
• Naphtha or Ligroin – an intermediate product used to make gasoline
• Gas oil or diesel distillate – diesel fuel and heating oil
• Lubricants – motor oil, and grease
• Residuals Products – coke, asphalt/tar, waxes
A typical 42 gallon barrel of crude oil (Figure 1) yields around 45 gallons of petroleum products; the 3-gallon refinery gain is due to the fact that the refined products have a lower density than crude oil.
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Figure 1. Products Made from a Barrel of Crude Oil
Source: U.S. Energy Information Administration, “Oil: Crude and Petroleum Products Explained.” 2012
Globally, transportation accounts for 61.7 percent of petroleum consumption. The remaining uses are non-energy related, including lubricants and asphalt production and use (16.5 percent); agriculture, commercial and public services, residential, and non-specified other (12.5 percent); and industry (9.3 percent). In the United States, transportation accounts for over two-thirds of U.S. petroleum consumption, with the remainder used by the industrial (23.6 percent), residential and commercial (5.3 percent), and electric power sector (0.9 percent).
Figure 2. U.S. Petroleum Consumption by Sector (2010)
Source: U.S. Department of Energy, “Total Energy: Monthly Energy Review. Tables 3.7a, b and c.” March 28, 2012.
As shown in Figure 3, light-duty vehicles – cars and pickup trucks – account for almost two-thirds of transportation petroleum consumption with the rest used by medium- and heavy-duty trucks (22.8 percent), airplanes (8 percent), and water transport, such as ships (4.8 percent).
Figure 3. U.S. Consumption of Transportation Energy, Petroleum (2009)
Source: U.S. Department of Energy, “Transportation Energy Data Book.” June 25, 2011.
Petroleum, or crude oil, is formed from organic matter deposited millions of years ago. As the organic material decomposed, it mixed with other material like sand and silt and eventually formed sedimentary layers. Over time, heat and pressure from overlying rock layers in certain places forced the this organic material to move until it was trapped beneath less porous rock where it accumulated in what is known as oil reservoirs.
Generally, conventional oil resources refer to those that are most accessible and easiest to produce. Unconventional resources are less accessible and more difficult to produce. Examples of unconventional resources include shale oil, oil sands, and deep underwater resources. As known conventional supplies diminish and the price of oil rises, we are increasingly shifting to unconventional resources, and what was once unconventional is today becoming conventional. Note that the term “proven reserves ” implies that the estimated quantities are deemed recoverable with reasonable certainty under existing economic and operating conditions.
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The combustion of petroleum emits a variety of pollutants – such as carbon dioxide, carbon monoxide, sulfur dioxide, nitrogen oxides, volatile organic compounds, and particulate matter. These pollutants are directly and indirectly linked to climate change, acid rain, and public health issues. As one of three fossil fuels, oil has less carbon content than coal, but more than natural gas. According to the U.S. Environmental Protection Agency’s 2012 U.S. Greenhouse Gas Inventory Report , CO2 emissions from petroleum accounted for 32.1 percent of total U.S. greenhouse gas emissions in 2010, ahead of coal (28.3 percent) and natural gas (18.5 percent). The transportation sector accounted for 77.8 percent of these CO2 emissions and the industrial sector (including refining) accounted for 13.1 percent. Within the transportation sector, gasoline and diesel contributed 90.1 percent of the CO2 emissions, 65.5 percent and 24.6 percent respectively. Petroleum refineries  are one of the largest energy consumers in the industrial sector, accounting for about 2.7 percent of total U.S. GHG emission in 2010.
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Historically, the world oil market has been dominated by national oil companies, particularly through the exercise of market power by the Organization of Petroleum Exporting Countries. OPEC has 12 member countries: six in the Middle East, four in Africa and two in South America. OPEC accounts for around 72 percent of the world’s proven oil reserves.
Table 1. Top 20 Countries’ Crude Oil Reserves (Billion Barrels)
United Arab Emirates*
In recent years, global oil production and reserve estimates have become more geographically diversified with unconventional oil such as Canadian oil sands playing an increasingly important role. A shift is also taking place in global demand patterns, with consumption in Asia now exceeding consumption in North America. Over the last 30 years, global petroleum consumption has increased by 26 percent, and reserves have increased by 109 percent. Asian demand has surged by nearly 15 million barrels per day (Figure 4). The U.S. share of world oil demand, and consequently its market leverage, is declining as the rest of the world increases its demand.
Figure 4. World Petroleum Consumption by Region, 1980 – 2010
Source: U.S. Energy Information Administration, International Energy Statistics
U.S. domestic crude production is up because of tight oil  – extraction of conventional light crude using the unconventional drilling technique known as hydraulic fracturing – and other unconventional supplies. In hydraulic fracturing, or “fracking” wells are drilled vertically and then turned horizontally to run within shale formations. A slurry of sand, water, and chemicals, together referred to as hydraulic fluid, is then injected into the well to increase pressure and break apart the shale so that the oil is released. Additionally, carbon dioxide injected into oil wells, known as carbon dioxide enhanced oil recovery , is helping to sustain oil production in otherwise declining oil fields and currently accounts for 6 percent of U.S. oil production; this practice is constrained by limited supplies of carbon dioxide.
At the same time, U.S. petroleum demand has fallen steadily since it peaked in 2005. Demand is not expected to exceed 2005 levels until after 2035, if at all, largely because of two key domestic policies: (1) renewable fuel standards requiring the displacement of petroleum-based gasoline with biofuels, and (2) new fuel economy standards for light-, medium-, and heavy-duty vehicles.
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Oil prices have historically been volatile and this is likely to continue due to supply disruptions motivated by world politics and shifts in global supply and demand. Because the oil market is global, any significant conventional oil find anywhere in the world or any technological breakthrough with regard to the recovery of unconventional oil sources that has the ability to meaningfully augment global supply, has the potential to push oil prices down. The prospects of finding a large conventional oil field within the United States are low, but off-shore (non-conventional) deep-water drilling in the Gulf of Mexico as well as on-land and off-shore regions in Northern Alaska hold the greatest potential. With a small amount of proven reserves relative to the global quantity, the United States is a price-taker. However, dramatic changes in U.S. consumption, as evidenced by the economic downturn in 2009 can affect world oil prices.
Figure 5. Crude Oil Spot Prices 1995 - 2012
Source: U.S. Energy Information Administration, Petroleum Data
By reducing its demand for oil, the United States can make itself more resilient to oil price shocks, and by increasing domestic production, the United States can reduce its trade deficit. The United States has numerous options for further reducing its oil demand, including additional tightening of fuel economy standards and shifting to alternative fuels (see our 2011 report: Reducing Greenhouse Gases from U.S. Transportation ). Also, an estimated 35-50 billion barrels of economically recoverable oil could be produced in the United States using currently available enhanced oil recovery  technologies and practices, or potentially more than twice the country’s proven reserves; enhanced oil recovery using carbon capture is the only domestic oil supply option that also decreases GHG emissions.
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