Norway will cut its oil production for the first time in 18 years, as Western Europe’s largest crude producer moves to respond to the coronavirus-linked crash in fuel demand.
The country’s oil and energy ministry said late on Wednesday that it would order producers to curtail production by 250,000 barrels a day in June or more than 13 per cent of total output, as the country honours an unofficial pact with Opec and its allies to help shore up the market.
The move comes as oil demand is estimated to have crashed by as much as a third globally, with measures to curtail the spread of coronavirus hitting travel and the economy. Oil prices have dropped by more than 70 per cent since January, with Brent crude slumping below $20 a barrel for the first time in almost two decades last week.
“We are currently facing an unprecedented situation in the oil market,” said Tina Bru, Norway’s minister of petroleum and energy. “We have previously stated that we will consider a cut in Norwegian production if several big producing countries implement significant cuts.”
Opec and allies including Russia agreed earlier this month to reduce production by about 10 per cent of global output, receiving the backing of the US and tacit support from the G20.
Norway, which produces roughly 2 per cent of world oil supply, indicated at the time it would support cuts but wished to remain outside the so-called Opec+ group of countries. Saudi Arabia has called on other countries to share the burden.
Norway’s energy ministry emphasised on Wednesday that the cuts were “made on an independent basis and with Norwegian interests at heart”, but referred to the G20 agreement to take “necessary measures to ensure energy market stability”.
The cuts come as the energy industry is under growing strain, with concerns that oil storage will be full to the brim within weeks owing to the unprecedented drop in consumption.
After cutting 250,000 b/d in June, Norway will maintain cuts of 134,000 b/d for the rest of the year, as well as delaying the start-up of several fields. In total it said the measures would mean production was 300,000 b/d below the level it had previously estimated by the end of 2020.
“If global oil storage fills up, all producing countries will face a very demanding situation,” the ministry said, adding that it expected there would be “significant reduction” from higher-cost producers outside the Opec+ group, such as US shale and Canadian tar sands.
The starting point for Norway’s cuts will be 1.89m b/d. Gas and condensate fields will be exempt, with Norway a significant gas exporter to other countries in Europe, including the UK.
The country’s oil output had been on a downward trend since peaking near 3m b/d 20 years ago, but has recovered in recent months following the start-up of the large Johan Sverdrup field.
The cut will be executed by granting revised production permits to affected fields, the ministry said, indicating it would affect companies beyond Norway’s state-backed Equinor.
Norway last cut production in 2002, operating in tandem with Opec when oil prices last slumped to near $20 a barrel. It also tightened the taps at points in the 1980s and 1990s when the market was oversupplied.