Page 4 - Euroil Week 18 2020

EurOil COMMENTARY EurOil
Norway cuts oil output for
1st time since 2002
Norway is doing its part to help the oil market recover
NORWAY
WHAT:
Norway has imposed a cut to production for the first time since 2002.
WHY:
The cut will amount to 250,000 bpd in June, easing to 134,000 bpd in H2 2020.
WHA T NEXT:
Norway is eager to see investment continue
to support production growth in the long term, having announced tax relief for the industry.
NORWAY has imposed a cut in its produc- tion for the first time in almost two decades, to support efforts by OPEC+ to reduce the supply overhang created by coronavirus (COVID-19) demand destruction.
Norwegian Energy Minister Tina Bru said on April 29 that the cut was unilateral and had been decided on “with Norwegian interests at heart.” The bulk of production on Norway’s continental shelf is still profitable even at today’s low prices, but the government fears that capital spending cuts being announced will result in substantial production losses in the future.
The plan is to reduce output by 250,000 barrels per day in June from a baseline level of 1.859mn bpd. Norway lifted 2.04mn bpd of oil, condensate and natural gas liquids (NGLs) in March, the last month for which data is availa- ble. The reduction will be eased to 134,000 bpd in the second half of 2020, and the launch of sev- eral fields due to come on stream this year will be delayed until 2021.
This means that in December, Norwegian production will be 300,000 bpd lower than it was originally forecast. The cuts will be lifted at the end of the year, Bru said.
An example to follow
Norway is the biggest oil producer in Western Europe, accounting for around 2% of global supply. It has been debating whether to enforce a reduction in output since early April, when the OPEC+ coalition agreed to take a combined 9.7mn bpd of supply off the market.
Oslo-based Rystad Energy described the move by Norway as a “confidence boost” to the industry, even though it will not make a substan- tial material difference to oversupply.
“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 the Sture and Mongstad terminals,” Rystad analyst Bjor- nar Tonhaugen said. “Unfortunately for the market, cuts are too small to make any practical difference for the global oil market in Q2 with a 20mn bpd implied oversupply, but on the mar- gin it could help the oil price recovery in H2 2020 and 2021.”
Furthermore, Oslo could be setting an exam- ple for other non-OPEC+ producers to follow, Rystad said, although it is too early to say if
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w w w . N E W S B A S E . c o m Week 18 07•May•2020