Norwegian officials including new Oil & Energy Minister Tina Bru were still “evaluating” on Tuesday whether they’ll cut the country’s offshore oil production, even after OPEC and several other oil-producing nations agreed to their own cuts over the weekend. Oil prices ended up falling again on Tuesday, as did the value of Norway’s currency, after widespread criticism that the cuts already agreed aren’t big enough.
Norway is not a member of OPEC and hasn’t voluntarily cut production for nearly 20 years. The double impact, however, of a dive in demand for oil because of the global Corona virus crisis and a recent price war between Saudi Arabia and Russia led to a collapse in oil prices that worries Norway as much as other oil nations. With too much oil on the market and very little demand, it would also be in Norway’s best economic interests if oil prices rose.
Instead they fell again on Tuesday, confirming analysts’ and economists’ criticism that the so-called OPEC+ cuts over the holiday weekend simply aren’t big enough. Even though the Oslo Stock Exchange (OSE) started its trading week on an upswing for a change, with its main index up 1.62 percent by early afternoon, the price of a barrel of Norway’s North Sea crude opened down. By late Tuesday morning, it was trading at USD 31.42, just half the price it commanded before the Corona crisis brought most of the world to a standstill.
Newspaper Dagens Næringsliv (DN) reported how the OPEC+ deal warded off the “worst possible scenario” for an oil market that’s out of balance, according to oil analyst Bjørnar Tonhagen at Oslo-based Rystad Energy. He predicted, however, that the market would react negatively to the size of the cuts, and he was right. Oil prices were still down by early Tuesday afternoon.
‘Lots of uncertainty’
The Norwegian oil industry’s trade association Norsk olje og gass was also unimpressed with the size of the production cuts, the effect of which might only amount to around 5 million barrels a day. “The oil price remains low,” Tommy Hansen of the association told DN. “We have to hope this (the OPEC+ cuts) can contribute towards stabilizing the market, but there’s still lots of uncertainty around that.”
Hansen added that “with the oil price and situation we have now, these are still demanding times for our business in Norway.” He wouldn’t say whether Norway’s oil industry should contribute with its own cuts in production.
“We don’t have any opinion on that, since it’s a decision that must be made by the Norwegian authorities,” Hansen told DN. “There are some things that are commercially sensitive for our companies, and most will say that this is something the authorities have to answer for.”
Norway’s new oil minister, Tina Bru of the Conservative Party, remained non-committal on Monday, when Norway was still officially on Easter holiday but most of the rest of the world was back at work, albeit under Corona-induced limitations.
She’d issued a statement on Saturday after taking part Friday in an extraordinary meeting of energy ministers that was organized by the G20 countries (those with the 20 largest economies in the world). She noted how the G20 countries had agreed on the importance of ongoing access to reasonably priced energy, and claimed “the whole world” was “standing together” in efforts to “get the oil market in balance again.”
Bru also noted how the recent steep fall in economic activity and oil consumption, as a result of Corona containment measures, “also hits activity on Norwegian oil fields and our advanced oil supply industry.”
“During the meeting I said that Norway will evaluate a unilateral Norwegian cut in oil production, on the assumption that an agreement between OPEC+ countries on production cuts is carried out,” Bru stated. She added that the G20 meeting provided “important context” but stopped short of revealing how any production cuts might be carried out in Norway, or how large they might be.
On Monday she remained tight-lipped, telling various Norwegian media that the government hadn’t yet decided on oil production cuts but would arrive at a conclusion “in the near future.”
Bru has also held video meetings with both industry representatives and labour union leaders representing oil workers. “This is a difficult situation for the business,” Bru stated afterwards. “My clear impression is that everyone is inclined to cooperate in the collective efforts to limit the spread of Corona infection and at the same time maintain safe and secure production on the oil fields.”
Bru told Norwegian Broadcasting (NRK) Monday afternoon that the government was “a step closer” to a decision on production cuts” and that it “was good” the OPEC+ countries had reached an agreement. “It will help contribute towards stabilizing the oil market over the next year,” she told NRK. “There’s no doubt that we need that.”
As for any cuts in Norway, “first we must evaluate whether we’ll make cuts at all. Now we have a basis for that evaluation, but we don’t know when it will occur.”
Norway’s oil production in February, before the Corona crisis exploded in Europe and the US, amounted to around 1.75 million barrels a day. After adding in natural gas liquids and condensate, production is equivalent to around 2.1 million barrels a day. The US is now the world’s largest oil producer, followed by Saudi Arabia, Russia, Canada, China, Iraq, the United Arab Emirates, Brazil, Iran, Kuwait and Norway.