Interest in algae as a feedstock for biofuel production has risen in recent years, due to projections that algae can produce lipids (oil) at a rate significantly higher than agriculture-based feedstocks. Current research and development of enclosed photobioreactors for commercial-scale algal oil production is directed towards pushing the upper limit of productivity beyond that of open ponds. So far, most of this development is in a prototype stage, so working production metrics for a commercial-scale algal biofuel system are still unknown, and projections are largely based on small-scale experimental data. Given this research climate, a methodical analysis of a maximum algal oil production rate from a theoretical perspective will be useful to the emerging industry for understanding the upper limits that will bound the production capabilities of new designs. This paper presents a theoretical approach to calculating an absolute upper limit to algal production based on physical laws and assumptions of perfect efficiencies. In addition, it presents a best case approach that represents an optimistic target for production based on realistic efficiencies and is calculated for six global sites. The theoretical maximum was found to be 354,000 L·ha−1·year−1 (38,000 gal·ac−1·year−1) of unrefined oil, while the best cases examined in this report range from 40,700–53,200 L·ha−1·year−1 (4,350–5,700 gal·ac−1·year−1) of unrefined oil.