Crude Rises 1.8% On Norway Oilfield Labor Strife

U.S. oil futures jumped 1.8% Monday on the increased likelihood that a labor dispute in Norway will result in a complete shutdown of the country's production.

Striking petroleum workers are at a standoff with oil companies in Norway over the terms of their retirement package--and the companies have threatened to lock out the workers and halt all production if a deal isn't reached by midnight. Norway currently pumps about 2 million barrels per day, roughly equivalent to 2.2% of global supply. It is the eighth-largest oil exporter in the world.

"Two million barrels a day coming off line has really spooked the market," said Summit Energy's Matt Smith of the Norwegian strike.

Light, sweet crude for August delivery settled at $85.99 a barrel on the New York Mercantile Exchange, up $1.54. Brent crude on the ICE futures exchange was up $1.79, or 2.2%, to $99.98 a barrel.

Traders early Monday were initially skeptical of the prospects of a significant hit to oil production, saying Norway's government would intervene before a full strike takes effect. But with no news of progress in the talks, the market gradually began bidding up oil prices.

"The whole market is going to shift into another level" if there is a production stoppage, GA Global Markets broker Tony Rosado said.

A complete shutdown of the Norwegian oil sector "would send crude oil prices sharply higher," Goldman Sachs said in a note.

The 16-day dispute has already taken 240,000 barrels a day off line. The workers are striking over the right to retire with a full pension at 62 instead of 65.

Goldman Sachs said the Norway disruption comes at the same time as new sanctions over Iran's nuclear program have left crude markets tighter than in the recent past. Still, Goldman expects the Norway disruption to be short-lived. "We would expect the Norwegian government to eventually intervene in the dispute if substantial volumes of production were at risk, much like it did" in 2004, Goldman added.

"The market will become very, very, very tight," said one trader of crude in the North Sea.

The Brent futures structure is already in backwardation, meaning that potential buyers worry they may face supply disruptions, said a second North Sea crude trader. Backwardation is when the price of the current contract is more expensive than that of those in the future.

Copyright (c) 2012 Dow Jones & Company, Inc.


Click on the button below to add a comment.
Post a Comment
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.


Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
Technical Sales- Decontamination/Chemical Cleaning Services
Expertise: Sales
Location: Baton Rouge, LA
Account Manager - Western US - Vapor Control & Degassing
Expertise: Sales
Location: Long Beach, CA
Sales Manager - Vapor Control/Degassing Services
Expertise: Sales
Location: Houston, TX
search for more jobs

Brent Crude Oil : $51.78/BBL 0.77%
Light Crude Oil : $50.85/BBL 0.83%
Natural Gas : $2.99/MMBtu 4.77%
Updated in last 24 hours