Krone strengthens on oil price rise

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Norway’s volatile currency, the krone, has been much stronger this week than it was earlier this year, and analysts point to the recent rise in oil prices. No one seems to think oil prices are high enough, though, to reverse cutbacks in the country’s important and beleaguered oil and offshore sectors.

Norway's krone sunk along with oil prices again this week, but that's at least helping some exporters. PHOTO: newsinenglish.no

Norway’s krone may finally be rising out of its dark hole dug by the dive in oil prices. PHOTO: newsinenglish.no

A barrel of oil out of Norway’s North Sea was trading at around USD 43 Thursday morning, its highest level so far this year. The current price compares to a low of USD 27 in January, when the krone also sunk in value to its weakest level in years. It took nearly NOK 9 to buy just one US dollar at that time, bad news for Norwegians traveling abroad but good news for Norway’s own tourism and export industries. Suddenly, Norway wasn’t as expensive for foreign visitors or customers of Norwegian businesses, and hotel bookings have soared in many areas.

This week, though, it’s been possible to buy a US dollar for just over NOK 8. That means a Norwegian hotel room priced at NOK 1000 now costs USD 124, compared to around USD 111 in Janaury. At mid-morning on Thursday, the krone had weakened a bit again, trading at NOK 8.25 against the US dollar and NOK 9.29 against the euro, but the trend has been upward.

Newspaper Dagens Næringsliv (DN) reported that the oil market remains in a state of “imbalance” after oil production has been much higher than demand since the summer of 2014. DN cited analysts who believe in an upturn now, and those at Rystad Energy in Oslo remain bullish about the long term. Rystad’s chief of analysis, Per Magnus Nysveen, told DN that oil production around the world is beginning to fall, and that’s affecting the oil price and oil investments.

The budgets of companies involved in the oil sector are already set for this year, Nysveen noted, so they “won’t be making any big changes through the year. But if the oil price is high at the end of 2016, budgets for 2017 will be good and the Norwegian oil service companies will be back in business.”

Asked whether Norway’s finance minister could sleep better, then, Nysveen responded that “by the autumn, I think we’ll all be having a good night’s sleep.”

Higher oil price still needed
Thina Saltvedt, an oil analyst at Nordea Markets, told Norwegian Broadcasting (NRK) Thursday morning that oil prices will need to rise quite a bit higher in order to really crank up the oil business again. DN reported that a price of around USD 60-70 will be necessary.

Saltvedt linked the recent rise to lower US shale oil production and to expectations around this weekend’s OPEC meeting in Qatar, where producers of 40 percent of the world’s oil will discuss whether to reduce production to boost prices. An agreement would send prices up higher.

“The large oil fields like Johan Sverdrup off Stavanger are beginning to be profitable (at current prices), but those farther north need higher prices,” Saltvedt told NRK. “At today’s price, it’s still not profitable to open new fields. Oil prices still need to go up and costs down.”

So Norway’s hotly debated “oil crisis” isn’t over yet, and a stronger krone can dampen the good times that some of Norway’s export industries have been enjoying. The country’s booming seafood industry, for example, may meet some resistance if prices for salmon and cod rise, too. The same goes for other exports, from metals to timber, while Norwegian hotel and restaurant prices may rise as well when converted to foreign currencies.

That in turn may make Norway’s central bank more likely to lower interest rates again, bringing them close to zero. “Even if the krone doesn’t strengthen much more, it will create challenges for the export industry, and not least Norges Bank,” Saltvedt cautioned. “That can mean that the bank will have to cut interest rates more quickly to help exports.”

newsinenglish.no/Nina Berglund