Oil Prices Rise On Supply Outage In Norway

Wage negotiations between two Norwegian oil workers’ trade unions and an employers’ association have fallen through, and hundreds of rig workers are going on strike today, which will immediately disrupt production at the Knarr field, operated by Shell and producing 63,000 bpd of crude, Reuters reports.

Now, 63,000 bpd is not a whole lot of oil, but the disruption has added to a quick decline in Libyan production rates, the Syncrude outage in Canada’s oil sands, and, most of all, growing worry that Saudi Arabia’s spare capacity—and OPEC’s, for that matter—will not be enough to offset the effect of Iranian sanctions on global oil supply.

As a result, Brent has crept up above US$78 a barrel and West Texas Intermediate has breached US$74 a barrel.

Things could have been worse if Norway’s largest oil workers’ union had joined the strikes, which will involve an estimated 670 people initially. However, that union, Industri Energi, inked a deal with employers earlier this year.

The number of workers on strike could swell to 2,250 if the tension between the parties cannot be settled. For now, this seems unlikely. The moderator of the negotiations, Carl Petter Martinsen, said in a statement that “The parties were so far apart from each other there was no point presenting a proposal that could be recommended to both sides.”

Wage talks between trade unions and employers began in March this year. Unlike in the past, this year’s negotiations were centralized rather than done on an industry-by-industry basis, and there was temporarily a danger of as many as 35,000 workers in various industries walking out if the talks had broken down.

The danger was avoided, but only for a while, apparently. The last major oil strike in Norway took place in 2012, which took offline 13 percent of the country’s oil production, pushing prices up to above US$100 a barrel. In that case, the government had to interfere to force an end to the strike.

By Irina Slav for Oilprice.com