For over a decade, and notably since the mid-2000s, OECD Europe crude oil production has slumped as a percentage of worldwide petroleum output. The majority of that European output issues from the North Sea. More importantly, yearly average European crude oil production has
plummeted over that span. North Sea production includes a key international crude oil price benchmark, Brent and related other offshore crude streams.
North Sea/Brent does not merely capture trader attention and spark media headlines. Despite its diminishing physical supply role as a share of global production, despite its sharp absolute production drop, North Sea/Brent’s marketplace power nevertheless is very important and extends around the globe. Why? The petroleum industry continues to price many other crude oils directly or indirectly relative to it. North Sea/Brent has a greatly disproportionate influence on global crude oil pricing relative to its output.
Moreover, not only has the barrel per day output of North Sea/Brent declined in recent years. Demand for the “high quality sweet” grades it represents remains substantial.
Consequently, all else equal, North Sea/Brent (“Brent”) crude oil supply in recent years generally has become tight (low “free supply”). So all else equal, since Brent acts as a price guide for other crudes, its supply/demand situation thereby tends to boost global crude oil prices to and sustain them at “high” (or “relatively high”) levels.
Brent’s bottom at the depth of the worldwide economic crisis was $36.20 per barrel (12/24/08). Although it peaked 3/1/12 at 12840 (making a double top alongside the 4/11/11 and 4/28/11 plateaus around 12700), at over 11000 it still remains quite high.
In 2000, European crude oil production was about 6.8mmbd, nearly equal to 1996’s 6.7mmbd. By 2004, it eroded to 6.1mmbd. European oil output represented 9.2 percent of world supply in calendar 1996, 8.8pc in 2000, and 7.3pc in 2004.
Since 2004, European output continued its steady and sharp descent, as did its share of total world oil production. In 2005 it was 5.7mmbd (6.7pc of global supply), with 2006 at 5.3mm (6.2pc), 2007 five mmbd (5.8pc), and 2008 4.8mmbd (5.5pc).
In 2009, it was 4.5mmbd (5.3 percent). In 2010, it was only 4.1mmbd (4.7pc), with 2011’s down even further to 3.8mmbd (4.3 percent of 88.4mmbd). The IEA estimates 2012 at 3.4mmbd, down about 50 percent from the 1996/2000 heights and merely 3.7pc of global production about 90.8mmbd (assume 4Q12 supply stood around that of the prior three quarters).
Not only has Brent long been a major international benchmark crude oil. Arguably its guiding influence on petroleum pricing has grown in recent years.
Compare the secular decline in North Sea crude oil output with recent US crude oil production trends. America’s long-run crude oil production tumble ended around 2008.