Oil prices almost as turbulent as this year’s summer holiday weather
Oil prices rose by around USD 2/barrel late this morning on expectations that the ECB would cut rates at today’s meeting and on the Norwegian Oil Industry Association’s (OLF) notification of a lockout on the Norwegian shelf. The lockout comprises 6,515 workers covered by the OLF agreement who will be locked out from their workplaces offshore with effect from Tuesday 10 July at 00.00. A lockout will imply a shutdown of all oil production on the Norwegian shelf of around 2m b/d.
A production shutdown on the Norwegian shelf will hit the European market hard. Norway is the world’s seventh-largest oil exporter and supplies around 1.5m b/d to Europe (largely equivalent to the loss of Libyan oil production/exports during the Arab Spring last year). The conflict, which has been going on for over a week, has already cut oil production in the North Sea by around 250k barrels.
20% of the Norwegian oil production goes to domestic market. If the lockout lasts for long something we don’t believe, it can tightened the market significantly and push up prices on oil products such as petrol and diesel or in a worst case scenario it may lead to scarcity of oil products like petrol and diesel.
The strike and a potential lockout come at a time when the European oil market is highly vulnerable to further supply disruptions, after the US further tightened its sanctions against Iran and the EU introduced a boycott against imports of Iranian oil from 1 July.
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