Norway’s currency continued its wild ride this week, both falling and recovering along with markets that grabbed attention worldwide. The krone gained against the US dollar on Tuesday but weakened against the euro and the British pound, while some analysts speculated that oil prices will fall further and stay low for months on end.
While the Oslo Stock Market rebounded a bit after Monday’s sharp decline, opening slightly up Tuesday morning with its main index at 558.47, the krone was still being described as weakest since the finance crisis took hold in late 2008 and early 2009. Norway ended up riding out that storm and then booming on high oil prices until demand for Norway’s most important export product started to decline last year. Now, with oil prices at a third of what they were at their highest point, the krone is getting battered again.
What a long, strange trip it’s been
The krone continued, however, its strange ride that’s lasted all summer, when it would strengthen against the dollar but weaken against the euro and pound, or vice versa. “Now it’s being blown in all directions,” currency exchange strategist Magne Østnor at DNB Markets told newspaper Dagens Næringsliv (DN) on Tuesday.
After falling against the US dollar last week, when, at one point, it cost just over NOK 8.3 to buy a dollar, it strengthened by Tuesday mid-morning when a dollar “only” cost NOK 8.16. That can make a difference for an American family spending NOK 50,000 on a Norwegian summer vacation during the past week: USD 103 just over the course of the holiday.
At the same time, it cost fully EUR 9.41 to buy a euro, a bit less than on Monday after the stockmarket dive but still one of the weakest exchange rates for the krone against the euro in many years. It also cost NOK 12.90 to buy a British pound on Tuesday morning, compared to around NOK 9 when oil prices were high and Norway’s economy was booming.
Østnor of DNB Markets said he thinks the winds around the krone “are all blowing in the direction of a weaker krone.” He and other analysts, like Ole Håkon Eek-Nielsen at Nordea Markets, think the krone will get weaker before it eventually regains some of its strength.
“The thousand-kroner question is how low oil prices will fall,” Eek-Nielsen told DN, as the price of Norway’s North Sea drude dipped to USD 43.50 a barrel, the lowest since the finance crisis began in 2008.
Eek-Nielsen noted, however, that “it’s when things look the bleakest that the market can turn.” The krone remained historically low against the euro, however, and many banks and brokerage firms were lowering their estimates for oil prices. As North Sea crude crept towards the USD 40 mark, realizations were setting in that it was selling for half of the USD 80-level state oil company Stataoil had set as “realistic” in 2018. It’s also well under the level many oil companies, including Statoil, need to remain profitable.
“The current level (of oil prices) is not sustainable,” Statoil’s chief economist Eirik Wærness told DN, blaming the dramatic decline on many forces all occurring at once: Russia, Iraq and Saudi Arabia are producing all the oil they can, skifer production in the US hasn’t begun to fall, Iran’s oil is coming on line, demand is weak and uncertainty about China’s economy is running high.
While Norway rode out the finance crisis on 2008-2009, many factors are different in the current decline, and more “problematic” for Norway, DNB oil analyst told DN while on his way to brief the bank’s CEO, Rune Bjerke, on the dramatic developments Monday. That crisis was based on a lack of capital, while now events are being driven by supply and demand.