The strike might begin as soon as on Saturday unless an agreement is reached, pushing international oil prices well above $50/bbl as Norway's oil output could decrease by 285,000 bpd, according to estimates by Norwegian Oil and Gas Association (NOG).
The strike could affect at least seven oil and natural gas fields. The unions are demanding a new wage agreement, as the industry workers have faced decreases in their disposable incomes in the past twelve months amidst a slump in Norwegian krone's FX rate caused by cheaper oil. The fields affected contribute roughly 18 percent to the nation's oil production and about 17 percent of natural gas output.
Five companies, including ExxonMobil, Engie, and BASF-owned Wintershall, operate the affected oilfields. Given the volatility of the overall situation, the strike, if commenced, might spread to other oilfields, thus triggering greater short-term declines in production.
Oil prices are bound to soar within a very short period of time in such a scenario, as Norway is the largest oil producer in the North Sea region. Norway produces some 1.6 bln barrels of oil per day, and also was the world's 15th biggest oil supplier in 2014.
In 2012, Norway accounted for some 11 percent of the EU's oil imports and 31 percent of the bloc's natural gas imports. That means any disruptions in Norway's oil output would immediately affect the market valuation of the London-traded Brent benchmark crude. Coupled with the still lingering post-Brexit volatility, the Norwegian oil and gas industry workers' strike could become a major upside factor for the crude prices.
"The global crude market has been rebalancing with slowing production and rising demand in the second quarter," Hong Sung Ki of Samsung Futures Inc. in Seoul said. "Crude demand forecasts will have to be adjusted following Brexit and this increases volatility in the market as it tries to rebalance itself."
Oil companies operating in Norway insist the decline in oil prices that started in 2014, forced them to implement cost-saving measures and greater flexibility in labour use in order to maintain competitiveness in the market.
"We do, of course, wish for mediation to lead to a deal, so that conflict is avoided," SAFE, one of the industry unions, said in a statement.
Initially, some 755 workers could go on strike, but should the conflict escalate, an estimated 7,400 workers are ready to join the strike.
Norwegian state-controlled oil giant, Statoil, has been refraining from any commentary on the matter. In fact, severe disruptions on the supply-side could impair the profitability of Norwegian operation of international companies like Exxon to the point where they would leave, thus improving Statoil's positioning as the nation's only major oil industry player.
Norwegian exchange-traded funds (ETF) have performed poorly since mid-2015 amid the low oil prices, and the krone slumped from 5.80 per dollar in 2012 to its current FX rate of 8.38 per dollar.