Understanding Oil Scarcity Through Drilling Activity

There are two dimensions of scarcity for exhaustible resources: physical and economic. While there is a general consensus that oil has grown physically scarce overtime, it is less clear whether the same can be said of economic scarcity. We develop a procedure based on evaluating movements in both drilling trends and rents in order to draw more precise inference about economic availability of oil reserves. We apply this method to data on the US oil industry and demonstrate that US crude oil reserves grew economically more abundant between 1955 and 2002, despite increasing physical scarcity.