Statoil Announces Production Cuts Amid Strike, Brent Spikes

Early Thursday, Statoil STO announced that it would halt production starting July 9 on its North Sea Shelf rigs until a labor dispute could be resolved. The news sent Brent crude prices back above $100 per barrel for the first time since mid-June.

The state-run Norwegian oil company, the world's eighth largest oil producer by output, said that it plans to cut 1.2 million barrels per day of oil output due to the dispute. The drop in supply to the world could be further hurt by the recent sanctions taken against Iran. European nations, who are more exposed to Brent crude prices than WTI prices, recently enacted import bans on Iranian oil that went effective July 1. The drop in supply from the Middle East and now from Statoil could send prices higher, putting further strain on the ailing European economy.

Twelve of the seventeen nations that use the euro are currently in recession, and higher oil prices do not help economic recoveries. Higher oil prices raise input costs for companies, squeezing margins and hurting employment growth. High oil prices also hurt consumers, as they are forced to spend a larger share of income on fuel purchases and have less to spend on discretionary spending. Oil prices are thus a hindrance to consumption growth and overall economic growth.

Companies that specialize in drilling wells, including Baker Hughes BHI, Transocean RIG, and Anadarko APC all fell on the news. Brent crude futures traded on the Intercontinental Exchange (ICE) rose to a high of $102.34 on the news, however have since pulled back to $100.51 per barrel.