You're right. To make hydrogen you need another energy such as oil but again oil consumption will be much less than the actual consumption.
Fuel Cells do not use H for combustion, rather "reaction". The chemical reaction "power" from the fuel cell is converted into Electricity, which move the vehicle. There are vehicles that use H for combustion, BMW 7 (Edward Norton, Cameron Diaz, opera star Placido Domingo and ultimate influencers Brad Pitt and Angelina Jolie.), but the H is not "made" in the vehicle, rather it is "pumped" in via a fueling station. Just like that of gasoline, we don't fill up with "Crude Oil" and expect the vehicle to refine the oil into usable fuel. BMW burns hydrogen in a conventional internal combustion engine. GM and Honda, like most other carmakers developing the technology, mix hydrogen gas with oxygen from the air in a device called a fuel cell to create electricity that drives electric motors. Proponents note that hydrogen vehicles emit no greenhouses gases, unlike gasoline-powered cars. They have greater range than today's electric cars and can be refueled faster than a battery can be charged.
Solar power, wind farms, even Hydo-Electric (water flowing through dams) are example of pollutant free methods of generating Electricty to"crack" H20 into H. Yes, electrolosis IS the most inefficient method to produce H. But we are (we as in the human race) a clever bunch. I'm sure some guys sitting in their garage tinkering around will "discover" the most efficient method to separate H from H2O. When they do, I'm all over that IPO!
??? You won't be using oil to make hydrogen. You can make hydrogen a number of ways, but it most likely will be made by electrolysing water. The power will come from nuclear reactors, hydroelectric, or possibly wind, solar or geothermal. We need far more nuclear reactors. Many bad decisions were made regarding nuclear reactors in the US during the 60's and 70's. We built horribly expensive one off plants that were way to big to manage either in the construction phase or the operational phase, whereas the French and Japanese built safe, smaller, one- design reactors at far lower cost. The French were disposing of reactor waste in glass casks dropped into the deep ocean. This is very safe and very practical, but i don't know if they still do it this way. We have way overreacted to the problem of disposing of spent fuels, and as a result wasted massive amounts of money once again. By the way, by far the greatest proportion of US nuclear waste is from military programs. The waste from civilian reactors dwarf that from the military. So if your worried about reactors because of the nuclear waste your worries are misplaced. I would far rather live next to a nuclear reactor than a coal fired power plant. And here is another fact, coal fired power plants emit orders of magnitude more radioactivity into the atmosphere than do nuclear reactors (which don't emit any activity into the atmosphere).
Despite the high fossil fuel prices, hydrogen production is still predominantly from natural gas and oil because it is cheaper than electrolysis. http://en.wikipedia.org/wiki/Hydrogen_economy
http://en.wikipedia.org/wiki/Electrolysis_of_water If I'm not mistaken we did it chemistry class, as far as I know there were not any reactors around.
Blah blah blah, BMW already made a hydrogen 7 series a year and a half ago... <a href="http://www.autobloggreen.com/2006/09/12/bmw-officially-announces-the-bmw-hydrogen-7/">Clicky</a>