Norway, western Europe’s biggest oil producer, joined international efforts to curb supply for the first time in almost two decades after prices fell to new depths.
The Nordic country will cut production by 250,000 barrels a day in June and 134,000 barrels in the second half of the year, the Petroleum and Energy Ministry said late on Wednesday. That’s based on a reference daily production of 1.86 million barrels, which is higher than the 1.68 million produced in March.
The ministry wasn’t able to provide an immediate clarification of what the reference level was based on.
It’s the first time Norway is a part of coordinated international efforts to cut output since 2002, a sign of how brutal the market rout is for producing nations that are simultaneously grappling with the coronavirus pandemic. The oil market has descended into chaos despite this month’s OPEC+ agreement to reduce production by a record, with U.S. prices going into negative territory for the first time and the North Sea Brent benchmark falling to more than 20-year lows.
“We are currently facing an unprecedented situation in the oil market,” Petroleum and Energy Minister Tina Bru said in the statement. The decision “has been made on an independent basis and with Norwegian interests at heart,” she said.
Norway accounts for less than 2% of global oil production. The country’s output is rising this year and was set to increase further thanks to the giant Johan Sverdrup field that started in October.Norway isn’t a part of the OPEC+ deal, but had said it would consider a unilateral cut to help the broader effort to stabilize markets roiled by a plunge in demand because of the coronavirus pandemic. The country’s oil industry and the government’s income from production are suffering badly from the rout, and Norway is expected to withdraw record amounts from its sovereign wealth fund to cover emergency spending this year.
Coupled with the effect of some delayed field startups to 2021, the cuts will mean that Norway’s daily oil production in December will be 300,000 barrels lower than companies had previously planned, the ministry said.
It didn’t specify which fields would be affected by the cuts, which will be implemented by granting revised permits. The oil companies will be consulted, and the cut will “be fairly distributed between the fields and thereby between companies,” Bru said. The cuts will be effective until the end of the year.
The OPEC+ alliance agreed to cut 9.7 million barrels in daily production in the biggest such effort ever. On top of that, other producers such as the U.S., Brazil and Canada are expected to contribute with a reduction of 5 million barrels, but that will come as a result of declines due to lower prices, and will take months to materialize.
Yet, the deal doesn’t come close to compensating for the loss in consumption brought on by government measures to slow the pandemic, which are set to create a global recession of historic proportions.
Norway, one of the world’s wealthiest countries, repeatedly declined invitations to join OPEC+ meetings during the previous downturn that started in 2014.