In the North Sea, a 15-year slump in oil production is likely to be halted this year. The turnaround after so many years is but one of a myriad of reasons that the global price of Brent blend crude fell last week to US$46 per barrel, from highs of above US$65 in the spring — a fall seen on stock markets around the world as a signal to sell.
The UK produced about 850,000 barrels a day last year — less than 1 percent of the world’s total and down from nearly 2.1 million a decade earlier, but a surge in investment — mainly before June last year, when the global price of oil stood at a heady US$115 — has, for now, borne fruit: provisional figures have shown a 3 percent increase in output from the UK continental shelf in the first six months of the year.
Output has risen despite a big drop in exploration drilling and jobs (especially compared with June last year), but that increased production has come at a time of faltering demand and economic growth — not least in China, now the world’s biggest crude importer.
The price decline has been exacerbated by increasing supply; and while Britain has been playing its part, the real powerhouses of new output have been elsewhere. One is the US, where the shale “revolution” has turned the country from a major oil importer into an exporter.
In addition new supplies have come from Iraq, while OPEC, led by Saudi Arabia, has refused to cut back output to counter the price slump, as it has in the past.
The most recent falls in the value of oil have been driven by new factors such as the rapprochement between the west and Iran, stemming from the Middle East country’s willingness to curb its nuclear program.
The expected easing of sanctions has led traders and speculators to predict there could be 500,000 barrels a day of Iranian exports coming on to world markets within six months, which further tilts the balance of supply and demand toward lower prices.
The US Department of Energy has just adjusted its forecasts downwards, with the US’ benchmark blend, West Texas Intermediate, currently trading at US$42, expected to average US$49 this year and only recover to US$54 next year.
BMI Research, an arm of the Fitch credit ratings agency, is even more bearish about the traditionally more highly valued Brent blend, expecting prices to remain anchored below US$55 at least till 2018.
These lower energy costs are bad for oil companies and tax revenues in producer nations, but good for importing countries, inflation figures and a swath of heavy-fuel-using sectors such as transport and manufacturing.
The AA motoring group reports unleaded gasoline now costs around US$1.74 per liter, with diesel at US$1.80, compared with US$1.96 and US$2.02 respectively at this time a year ago. Natural gas prices have also slumped, bringing some reductions in household heating bills — but also undermining the economics of both a British shale boom and North Sea investment.
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