UPDATED: The price of a barrel of Norway’s North Sea crude oil crashed to its lowest level since 1999 this week, falling even further to below USD 17 a barrel early Wednesday. The country’s currency weakened again on the news, as debate swirls over proposals to offer crisis aid to the oil industry amidst market chaos.
Oil prices fell to as low as USD 19.01 in morning trading, then even lower until reviving on Wednesday. By late afternoon in Oslo, North Sea Brent crude was trading back up at USD 21.48 but the market was described as “out of control.”
Meanwhile it cost NOK 10.71 to buy one US dollar on Wednesday afternoon. Norway’s currency is always tied to the value of its most important export product, so with oil trading at just a third of its value earlier this year, the krone has been battered as well.
There’s still simply way too much oil on the market at present, compounded by a steep dive in demand because of Corona virus containment measures. Airlines aren’t flying, commuters aren’t driving their cars, people all over the world are told to stay at home to limit infection, and that’s all pushed the oil market severely out of balance.
One Norwegian analyst, Nadia Wiggen at Oslo-based Pareto Securities, tied Tuesday’s 26 percent fall in the price of North Sea Brent crude to an overly bullish US market. The price of the US’ West Texas crude (WTI) fell to literally nothing after high production that’s left traders storing crude oil on tanker vessels after running out of storage capacity on land. Wiggen told newspaper Dagens Næringsliv (DN) how that oil can thus be exported to Europe, driving down the price of the Brent crude from the North Sea that European consumers mostly buy.
Tax relief proposal fuels debate
The huge and unsettling swings in the oil price, mostly downward, have fueled debate in Norway over whether the country’s highly profitable oil companies should be granted tax relief and incentives to keep investing offshore. The goal with that would be to maintain jobs in Norway’s large offshore industry, which politicians like Sylvi Listhaug of the conservative Progress Party want to save. Listhaug, a former if short-lived oil minister herself, justified proposed tax relief by claiming that the oil industry is also in crisis now and needs help.
“We have seen what the oil business means for Norway,” Listhaug told newspaper Klassekampen last week. “We’re using hundreds of billions of kroner without having to take up large loans because we have our oil fortune (in the form of the Oil Fund, where oil revenues have been stashed since 1996). Now it’s time to stand up for the industry that has produced all the oil.”
Norway’s government has been asked to present an emergency crisis aid package for the oil industry, to maintain activity on Norwegian oil fields. It’s expected in connection with the revised state budget due to be presented in mid-May.
Crisis aid to the oil industry has been sought not only by the oil companies seeking tax relief but also by labour unions representing oil workers. Both the national employers’ organization NHO and Norway’s largest trade union confederation LO support the demand, to avoid crisis within the oil supply and service industries. Oil companies specifically want to be able to write off offshore investments in the year they’re made, and all at once, instead of spreading them over six years, through a temporary relief program this year and next. That in turn would generate work for offshore suppliers and retain competence.
Oil shares sink
Others object to offering tax relief to companies like Equinor that have logged huge profits for many years, arguing that it would also put other taxpayers at risk. Still others claim that demand for oil may never return to historic levels, not least because of climate concerns, and that Norway should pay more attention to diversifying its economy to make it less reliant on oil.
Shares in Equinor, still 67 percent-owned by the state, meanwhile, were tumbling Tuesday morning, down 3.49 percent by midday to NOK 126. Shares in other large Norwegian companies were also falling, with Telenor down 4.16 percent and Norway’s largest bank DNB down 3.25 percent.
There was one major winner on the list of shares most actively traded: Frontline, the Oslo-based oil tanker owner that’s among those benefitting from the need for oil storage space, also on ships. It was up 10.67 percent, to NOK 115.10 per share.