A barrel of Norway’s North Sea crude oil was trading around 4 percent higher Thursday morning, at nearly USD 24 a barrel, after signs of higher demand and more production cuts. Norway is finally joining other countries in cutting production as well.
The Norwegian government announced Wednesday night that it would cut production on the Norwegian Continental Shelf by 250,000 barrels a day in June and by 134,000 barrels a day throughout the remainder of the year. Oil & Energy Minister Tina Bru also said that start-up of oil production on several fields will be delayed until 2021.
That means total Norwegian production in December 2020 will amount to 300,000 barrels a day less than originally planned by the oil companies. “The regulation will cease by the end of the year,” Bru added in the ministry’s statement, as it joined efforts to shore up an oil market that’s been severely out of balance since production by Russia and Saudi Arabia boomed in a price war at the same time as demand plummeted because of the Corona virus crisis.
“We are currently facing an unprecedented situation in the oil market,” Bru stated. “Both producers and consumers benefit from a stable market.” She noted that Norway had agreed to “consider a cut in Norwegian production if several big producing countries implement significant cuts.” OPEC members and Russia have agreed on cuts of up to 9.7 million barrels a day, due to take effect on Friday.
The goal is to boost oil prices that collapsed last month. Oil is Norway’s most important export product, and the country’s now-troubled economy always gains on high oil prices. Many oil companies need prices of at least USD 40 a barrel to turn a profit, nearly double the current level. Bru acknowledged that the decision to cut production was made “with Norwegian interests at heart.”
Oil analyst Helge André Martinsen of DNB Markets described the government’s cuts as mostly a signal of solidarity, telling newspaper Dagens Næringsliv (DN) that they will constitute “a drop in the ocean” in terms of the oil market in general. Norway accounts for around 2 percent of the world’s oil production. He stressed that it had been expected that Norway, Canada and the US would contribute to efforts to rebalance the market with oil production cuts.
“It’s absolutely important that Norway is part of this,” Martinsen told DN, “but compared with the other OPEC+ countries, these are modest cuts from Norway.” Bru confirmed that Norway’s gas fields are exempt from the cuts, adding that the oil production cuts “will not affect Norwegian gas production or Norwegian gas exports.”
To read the government’s entire statement, click here (external link to the oil ministry’s website).