It cost more than NOK 8.60 to buy one US dollar on Tuesday, after the Norwegian currency weakened once again. Low oil prices are to blame, along with international unrest in general.
“I’m not surprised the krone is where it’s at, in light of the oil price and risk aversion in the market,” Nils Kristian Knutsen, a currency analyst for Handelsbanken, told newspaper Dagens Næringsliv (DN) when oil prices were around USD 63 a barrel last week.
They briefly fell below USD 60 heading into last weekend. A barrel of Norway’s Brent crude oil was selling for USD 61.18 late Tuesday afternoon, but that’s way below the levels as high as USD 85 in early October.
No one is panicking, though, either in the government, the oil business or analysts themselves. On the contrary, they’re calm because of the severe cost-cutting that Norway’s oil industry underwent when oil prices collapsed in 2014 and sunk under USD 30 a barrel. Eldar Sætre, chief executive of state oil company Equinor, was on national radio Tuesday morning, reassuring listeners that the company has enjoyed strong profits and can remain profitable also at oil prices lower than this week’s.
Harald Magnus Andreassen, chief economist at Sparebank1 Markets, agreed, telling newspaper Aftenposten on Monday that global stock exchange returns are more important for Norway than sheer oil prices. “We don’t live off oil revenues,” Andreassen noted, but rather the oil revenues the country has already saved up and invested through the country’s so-called Oil Fund. Government leaders only spend a small portion (3 percent or less) of the total size of the fund every year.
“No oil company is using an oil price of USD 85 as the basis for its investments now,” Andreassen said. He noted that this week’s price, even “down” at around USD 60 a barrel, is in line with where oil prices were at the beginning of the year when Norway was already in the midst of economic recovery.
He cited overproduction of oil as the main reason that oil prices have sunk more than USD 20 a barrel in recent weeks. There’s simply more supply than demand right now.
Analysts remain surprised that the krone has fallen so much in value against both the US dollar and the euro, since economic fundamentals in Norway remain strong. DN reported late last week that they were looking closely for a weakness in the economy that could explain the drop: “There’s great movement in the krone now,” said Knutsen of Handelsbanken, falling back on the “cocktail of the oil price fall and unease.”
At least one Norwegian company stands to benefit from the oil price decline: Norwegian Air, the ever-expanding airline that announced a new direct flight to Brazil this week, can save more than NOK 2 billion on lower fuel costs. Its shares have risen in recent weeks.