You're not alone in feeling like (E) is cheating upon first read. I had felt pretty confident about getting rid of the other four, though, so I was really banking on (E) being correct.
Given that this is Test 1, I was almost tempted to write this question off as a mistake on LSAC's part, because it really is confusing how (E) / the stimulus is meant to be interpreted.
I thought the paradox was:
Given that we think we can extract the same from our known oil fields now as we could ten years ago, and given that we haven't discovered any new oil fields, why has domestic oil production increased?
i.e. What makes us think we can ramp up oil extraction if we haven't found any new sources? Or why have we been forced to suck up our domestic oil reserves at a possibly reckless rate?
But I think that's not how LSAT intended us to view the paradox.
If you notice, I counted the first two ideas as one half of the paradox and the last idea as the other half.
But they've divided up the paragraph differently ... note the placement of the "yet" ... I think they want us to see it like this:
Given that we haven't discovered new oil fields over the past ten years and given that the domestic production of oil has increased over the same period, how is it possible that our oil reserves are the same today as they were ten years ago?
(E) makes a lot more sense as an answer to that question.
I think you and I were both thinking in terms of "rate of extraction," not "total capacity of oil."
If we think in terms of "total capacity of oil," it makes more sense. Let's say 10 years ago, the US surveyed its oil fields and found they had an oil bank account of 20 billion barrels. There aren't any deposits going into that account, only withdrawals.
So if we haven't discovered any new fields and we've increased domestic production of oil, then our current oil bank account should be less than 20 billion barrels, not the same.
(E) is explaining how it could be the same, despite the fact that we haven't found any new fields. The existing fields turn out to have more extractable oil than we previously thought.
=== other answers ===
(A) Importing more foreign oil doesn't explain why we still have the same amount of domestic oil.
(B) Conservation would only explain how we're depleting our oil bank account more slowly, not how the bank account still shows the original balance from ten years ago.
(C) This only helps explain why we haven't found any new fields, but that's not the central tension of the paradox.
(D) This only helps explain why people might be consuming domestic oil more (it's cheaper), but that's not the central tension of the paradox.
Hope this helps.
#officialexplanation