A barrel of Norway’s North Sea crude oil was selling for USD 22.85 Monday morning, the lowest price since the spring of 2003. Nearly two decades of gains have been wiped out, leading to another gloomy opening for the Oslo Stock Exchange this week.
Even though several Norwegian oil analysts have predicted that North Sea crude could fall to just USD 10 a barrel, the leader of the Center on Global Energy Policy at Columbia University in New York is already calling the recent dive in oil prices an “historic collapse.” Jason Bordoff told the Financial Times on Monday that he foresees more production cuts.
US crude prices fell to less than USD 20, a level not seen for 18 years, according to newspaper Dagens Næringsliv (DN). Monday’s dive in the price of North Sea crude oil was widely blamed for another decline of around 2 percent in the Oslo Stock Exchange’s main index. It opened down again after several days of recovery last week.
The price of Norway’s most important export product, meanwhile, deteriorated from just over USD 25 on Friday (already a crash from prices around USD 60 earlier this year) to under USD 23 by mid-morning.
‘Clear’ over-supply of oil
“The over-supply of oil is becoming ever more clear as a steadily larger portion of the world shuts down (because of the Corona virus crisis),” wrote analysts at Nordea Markets Monday morning. Storage facilities are filling up rapidly, they noted, while it takes time to shut down oil production at many facilities around the globe.
“The oil price will therefore most probably continue to fall,” Nordea wrote, adding that Norway’s currency (the krone) will also likely continue to weaken. Even if Norway’s central bank intervenes again, “we don’t think it will manage to completely stop this movement.”
The krone had strengthened last week, but was trading around NOK 10.6 to the US dollar Monday morning.
Oil Fund saves Norway from borrowing
Norway, however, can still rely on its huge sovereign wealth fund known as the Oil Fund, where the vast majority of Norway’s oil revenues have been stashed since 1996. It’s the ultimate piggy bank for Norway at a time when the government is now dipping into it like never before to fund economic crisis packages that already have added up to more than NOK 300 billion.
The Oil Fund allows Nowegian officials to avoid having to borrow money to fund the economic recovery packages and balance the state budget. Finance Minister Jan Tore Sanner and the government have the full permission of a unified Parliament to withdraw what they need to cover a budget deficit already estimated at NOK 135.8 billion this year alone.
The oil price dive means that deposits into the Oil Fund won’t be nearly as big as they’ve been over the past decade when oil prices soared. Newspaper Dagsavisen editorialized on Monday, however, that Norwegians can thank visionary politicians in the early 1970s who decided that Norway’s North Sea oil would be kept under state control and, later, that the enormous wealth it created would be saved, invested and not spent. It’s coming in handy now. The era of high oil prices may be over, for both Corona and climate reasons, but the Oil Fund won’t be emptied and can continue to help bolster the economy when needed.