Norway to Impose Output Cut
Norway has agreed to cut its production for the first time in almost two decades to support Opec+'s efforts to rebalance the market, with its energy ministry announcing late on April 29 that the country would cut production by 250,000 b/d in June and by 134,000 b/d during the second half of the year. The baseline for the cuts is 1.859mn b/d.
"The coronavirus pandemic and the efforts to contain it in large parts of the world have had a substantial impact on economic activity globally and thereby also for oil demand," the ministry said in a statement. "In the current unprecedented situation cuts in oil production introduced by the government will contribute to a faster stabilisation of the oil market compared to letting the rebalancing take place only through the market mechanism."
Norway, the biggest oil producer in western Europe accounting for 2% of global supply, has been debating whether to impose a cut for several weeks. While OECD member Norway has said it supports Opec+'s actions, its cut is unilateral and not co-ordinated with the producers' alliance.
The launch of several fields will also be delayed until 2021, the ministry said, resulting in December output coming in 300,000 b/d lower than forecast.
"The cut will include oilfields on the Norwegian Continental Shelf and be fairly distributed between the fields and thereby between companies," Norwegian energy minister Tina Bru said. "It will imply a limitation of production for those oil companies with ownership shares in the relevant oil fields. Gas fields are exempt. Thus, the cut will not affect Norwegian gas production or Norwegian gas exports."
Norway noted that its petroleum act allowed the government to adjust the output quotas stipulated in the production permits of fields.
Brent is up almost 15% at $26/b, with Rystad attributing the rise to Norway announcing the cut and a growth in US gasoline demand.
"These cuts are inevitable in any case as Norway has only 20 days production coverage for storing capacity of 40mn barrels, and most likely the filling grade is already very high for most fields as for onshore caverns at Sture and Mongstad terminals," Rystad's head of oil markets Bjornar Tonhaugen said in a research note on April 30. "Unfortunately for the market, cuts are too small to make any practical difference for the global oil market in Q2 with a 20mn b/d implied oversupply, but on the margin could help the oil price recovery in H2 2020 and 2021."
Rystad also said it set a good example for other producers outside Opec+ to follow. "It remains to be seen if others will join the trend. If more countries curtail their supply, then we really can start talking about a possible resolution to the crisis and may see prices rising back to healthier levels," Tonhaugen said.
The last time Norway imposed a cut on production was in 2002, when it reduced output by 150,000 b/d for half a year. At the time the country's production was much higher, at over 3mn b/d. Norway's upstream industry was also far less crowded in 2002. Equinor, then known as Statoil, was responsible for a greater share of production alongside other state companies, and there were fewer small-sized and foreign players.