The oxygen is limited because it’s a enclosed submarine surrounded by water. It doesn’t have the ability to generate oxygen itself so it only has what it’s brought down with it.
The oxygen is running out because the humans are breathing it and converting it to Carbon Dioxide. It’s not like the oxygen is being destroyed or ‘lost’, it’s being bound up in a new molecule. When they refer to “oxygen” in this case, they are referring to what’s called “molecular oxygen” or the molecule O2. Once enough of the O2 has been breathed in and converted to CO2, the crew will lose consciousness and eventually die.
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