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Tuesday, June 25, 2024

Oil shares and krone plummet in value

UPDATED: The value of the Norwegian krone, the Norwegian state oil company Statoil  and many other oil-related firms all took a dive on Friday after oil prices also plummeted following Thursday’s OPEC meeting in Vienna. The Oslo Stock Exchange was hit hard, as shares in Statoil slid 9 percent by midday after the price of North Sea crude fell to less than USD 73 a barrel.

Statoil's headquarters in Stavanger got an unexpected visit from teams of inspectors from both the EFTA and Norwegian competition authorities this week. It launched the start of what's likely to be along legal process between Statoil and the EU Commission. PHOTO: Statoil/Øyvind Hagen
It was a very dark day for Statoil on the Oslo Stock Exchange on Friday, after oil prices tumbled again. PHOTO: Statoil/Øyvind Hagen

“I can’t remember ever seeing Statoil’s shares falling nearly 10 percent in one day,” share strategist Erik Roland of Nordea in Oslo told Norwegian Broadcasting (NRK). He blamed the dive squarely on the rapid decline in oil prices after ministers for the Organization of Petroleum Exporting Countries (OPEC) voted against cutting oil production. With demand already low and supplies high, not least because of the US’ higher domestic production degree of self-sufficiency, oil prices are now running at half their level of recent years.

Statoil’s rapid decline Friday morning also contributed mightily to a very dark day on the Oslo Stock Exchange. Share prices of other oil- and oil service share were also falling by between 5-10 percent and the stock exchange’s main index was down 3.2 percent three hours after its 9am opening. It closed at 566.34, down 2.73 percent.

The decline by midday meant that Statoil shareholders, of whom the Norwegian state is by far the largest, lost more than NOK 40 billion in total share value, at least on paper. At the end of the day, quickly dubbed “Black Friday” by media commentators, Statoil closed at NOK 132.50 per share, down 7.34 percent from the day before. Several other companies took big hits, including Seadrill, down 6.86 percent, Yara, down 4.33 percent, and even rock-solid DNB, Norway’s biggest bank, down 3.16 percent.

The Oslo Stock Exchange (Børsen) is off to a good start this year, with share prices rising and traders predicting more increases in the stock exchange index. PHOTO:
The Oslo Stock Exchange (Børsen), which has been flying high for years, also had a dark day, after being hit much harder by falling oil prices than other European exchanges. PHOTO:

Analysts had expected a decline, but many were expressing shock over how large it was. Morten Jensen, chief analyst at DNB Markets, claimed it “was an extremely special day” on the Oslo exchange, which was being hit much harder than other European stock exchanges because of its domination by oil-related listings. The value of the Norwegian krone also fell, and by the end of the day, it took more than NOK 7 to buy one US dollar. That compares to NOK 6 and even less just last year.

“This is really just out of this world,” Jensen told NRK. “To put in rather flippant terms, we’re gobsmacked, all of us.”

Jensen said Statoil dragged all the other oil and oil-related companies down. The oil service companies rely on orders from the oil companies, many of which have such high costs in Norway that various projects can become unprofitable after the decline in oil prices. It seems many oil companies had grown accustomed to prices over USD 100 a barrel, and the cost of hiring, for example, high-salaried engineers during the recent boom years is now way too high with oil prices down at least 40 percent.

Norway’s economy has remained strong and is believed able to withstand the current downturn in its important oil sector. As newspaper Aftenposten pointed out on Friday, jobs in the oil sector will likely decline, salary growth in general may decline as well and fewer oil kroner will flow into the state treasury and Norway’s oil fund. Odfjell Drilling was the latest company to warn this week that it may need to lay off around 100 workers because of slowdowns in the oil sector.

At the same time, however, lower oil prices can stimulate the global economy, Norwegian exports won’t be so expensive, energy costs will decline and companies can benefit from lower salary growth. The mainland (non-oil) sector of the economy may benefit, at the expense of the long-prosperous offshore sector.

Some analysts told newspaper Dagens Næringsliv (DN) earlier this week that they predict oil prices may fall to around USD 60 per barrel. That in turn may prompt the country’s central bank, Norges Bank, to cut interest rates, to slow the decline of the currency and stimulate spending. The weaker krone, however, is welcomed by Norwegian manufacturers and exporters, because it makes their products more competitive internationally. Imports will become more expensive, but exports will be cheaper.

Oil Minister Tord Lien, meanwhile, still believes oil prices will eventually rise again. He cited international analyses that predict consumer growth will create more demand, although he noted that “sky-high” prices aren’t good either. The price decline now is likely to delay exploration and other projects in the North Sea, as companies scramble to cut costs and maintain profitability. Berglund



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