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Data released annually at this time by the major oil companies on their prior-year performances rarely generates much interest outside the business world. With oil prices at an all-time high and Big Oil reporting record profits, however, this year has been exceptional. Many media outlets covered the announcement of mammoth profits garnered by ExxonMobil, the nation's wealthiest public corporation, and other large firms. Exxon's fourth-quarter earnings, at $8.42 billion, represented the highest quarterly income ever reported by an American firm.
"This is the most profitable company in the world," declared Nick Raich, research director of Zacks Investment Research in Chicago. But cheering as the recent announcements may have been for many on Wall Street, they also contained a less auspicious sign. Despite having spent billions of dollars on exploration, the major energy firms are reporting few new discoveries and so have been digging ever deeper into existing reserves. If this trend continues -- and there is every reason to assume it will -- the world is headed for a severe and prolonged energy crunch in the not-too-distant future.
To put this in perspective, bear in mind that the global oil industry has, until now, largely been able to increase its combined output every year in step with rising world demand. True, there have been a number of occasions when demand has outpaced supply, producing temporary shortages and high gasoline prices at the pump. But the industry has always been able been able to catch up again and so quench the world's insatiable thirst for oil. This has been possible because the big energy companies kept up a constant and successful search for new sources of oil to supplement the supplies drawn from their existing reserves. The world's known reserves still contain a lot of oil -- approximately 1.1 trillion barrels, by the estimates of experts at the oil major BP -- but they cannot satisfy rising world demand indefinitely; and so, in the absence of major new discoveries, we face a gradual contraction in the global supply of petroleum.
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