The U.S. Energy Information Agency (EIA) just reported that United States “proven reserves” of crude oil in 2012 jumped by 15.4% to 29.2 billion barrels. This new official level is only about 13% of the declared reserves of Saudi Arabia.

But U.S. oil companies follow conservative accounting standards for legal and tax advantages in stating reserves that understates by as much as 90% the amount of that will be extracted from their wells. OPEC cartel members are notorious for inflating their reserves for political purposes, and Saudi Arabia was recently outted by WikiLeaks for overstating their reserves by 40%. American crude oil reserves are already greater than Saudi Arabia’s, and the U.S. lead will continue to expand.

Worldwide oil reserves are published by the U.S. Energy Information Administration (EIA) each year. The 12 member Organization of Petroleum Exporting Countries (OPEC) dominates EIA totals by claiming to hold about 75% of all global reserves. America is officially listed as 11th in reserve size; behind Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Iran, Russian Federation, Venezuela, Mexico, and Canada. With the exception of the U.S., Russian Federation, and Canada, all the other “leaders” are members of OPEC.

But the U.S. must conservatively report “Proven Reserves” as the sum of the “book assets.” The CEOs of each American company are required under U.S. Securities and Exchange Commission rules that carry potential civil and criminal liability to attest that a rigorous evaluation with a “high standard of evidence” has determined their proven reserves are “known to be economically and technologically extractable at the present time.” Companies are also incentivized to understate reserves to maximize oil depletion tax credits that delay income tax payments.

OPEC members in contrast operate as “National Oil Companies” that are state-owned monopolies that control all oil development within a country. Unlike private companies, the World Energy Outlook 2010 warned that NOC “reserve” statements:

often a lack of transparency in the way reserves are reported: many national oil companies in both OPEC and non-OPEC countries do not use external auditors of reserves and do not publish detailed results.

The OPEC Secretariat located in Vienna reports each cartel members’ stated reserves in the OPEC Annual Statistical Bulletin. Under the report’s “Questions on data” footnote, the Secretariat states they welcome questions, but “OPEC regrets that it is unable to answer all enquiries concerning the data in the ASB.” OPEC members’ excuse for not providing independent reserve audits or appraisals is “oil reserves are state secrets.” WikiLeaks published 2011 intercepts of secret cables to the U.S. embassy in Riyadh by the senior geologist at Aramco, Saudi Arabia’s national oil company, warning that the kingdom’s crude oil reserves may be overstated by “nearly 40%.”

To act as a cartel and keep prices up, OPEC manipulates world oil supply by allocating crude oil production quotas among its members. The quotas were originally set in 1980 by the size of each member’s stated reserves. But according to EIA, many members hyped stated reserves by 40% to 200% when they joined OPEC to maximize quota allocation for crude oil production [below]:

OPEC Member Prior Reserve Quota Based Reserve Percent Increase Iran 48.8 billion barrels 92.9 billion barrels 90.4% Iraq 47.1 billion barrels 100.0 billion barrels 112.3% Kuwait 66.7 billion barrels 92.7 billion barrels 39.0% Saudi Arabia 172.6 billion barrels 257.6 billion barrels 49.3% United Arab Emirates 33.1 billion barrels 98.1 billion barrels 196.4% Venezuela 25.0 billion barrels 56.3 billion barrels 125.2%

None of the OPEC members pretend to adhere to minimal accounting standards in stating reserves. Iraq in October 2010 announced it was raising stated reserves from 115 billion barrels to 143.1 billion barrels; Iran responded a week later by raising their reserves from 136.6 billion barrels to 151.2 billion barrels. The United Arab Emirates since 1997 has reported 97.8 billion barrels in reserves. Every year since 2008, Kuwait has reported 104 billion barrels and Algeria has reported 12.2 billion barrels in reserves. Despite being the largest OPEC producer every year, since 1991 Saudi Arabia has reported reserves varied slightly between 260 to 267 billion barrels. The bottom line is OPEC reserves statistics are vastly overstated.

Forbes’ contributor Ryan Carlyle, Sub-sea Hydraulics Engineer, stated that U.S. “corporate reserves estimates are consistently 1.5x to 5x lower than the eventual “ultimate recovery” figure at field abandonment.” The “ratios are going even higher with current oil prices,” and new technology will push eventual oil recoveries in many fields up by 1,000% over current “proven reserves levels.” He also stated oil companies do not add reserves until development projects are complete and full production is achieved.

Oil consumption in the U.S. rose by 90% between 1911 and 1918. When the U.S. Bureau of Mines discovered the oil companies’ reported “proven reserves” was equal to only 11 years of demand, they issued the first warning America was about to hit “peak oil” production in 1919. One Senator was so fearful of a “gasoline famine” he demanded the Navy convert back from oil to coal. Distilling shale oil “locked up in the mountains of Colorado, Utah and Nevada” was offered as an alternative, but in February 2007 the IEA expected “additional cost and technological challenges surrounding production of nonconventional [shale and tar sands] sources make these resources more uncertain.”

Mark Twain was right about oil when he said “history rhymes,” because U.S. oil companies are currently reporting “proven reserves” equivalent to only 11 years of demand. But American “proven reserves” vastly understate how much oil will be produced from existing wells. Fracking technology made shale oil very profitable to produce and has driven a 60% increase in domestic crude oil production over the last three years. EIA estimates U.S. oil production will expand another 30% by 2016; while annual gasoline consumption peaked in 2007 and will be down 18% by 2025.

Saudi Arabia pumped billions of barrels of oil in the last 25 years, yet their “reserves” jumped from 172.6 billion barrels in 1989, to 257.6 billion barrels in 1990 and are stated at 267 billion barrels today. Taking a 40% haircut for the kingdom’s overstatement means Saudi Arabia’s reserves are 160 billion barrels and falling. With U.S. crude oil reserves at 150 billion barrels in 2012 and passing 205 billion barrels in 2016, America again has the largest crude oil reserves in the world.