Oil is not well for this energy-dependent country

Pedestrians walk in the old town district of Stavanger, Norway.
Kristian Helgesen | Bloomberg | Getty Images
Pedestrians walk in the old town district of Stavanger, Norway.

The rout in crude oil prices isn't hurting just the U.S. shale drillers that have ramped up production in recent years. It's also punishing one of the world's wealthiest nations: Norway.

The small Scandinavian country, known for its picturesque fjords and family-friendly social policies, is also a major petro-nation, accounting for more oil exports than any other country in Europe. That means that $45-per-barrel crude has been punishing for Norway, whose central bank said in a recent report that oil at levels below $70 "will have relatively substantial consequences" for its economy.

And that's certainly what the market seems to think.

Since oil's plunge began last fall, the Norwegian krone has seen a 12-year low; the country's national oil company, Statoil, has canceled projects and reported its first loss since going public in 2001; and the government has cut interest rates in order to stimulate the economy, signaling that further monetary easing could also be in the offing. Late Thursday in Europe, senior Norwegian officials were preparing for an emerging meeting on Friday to discuss plans for a potential stimulus package, according to multiple reports.

The anxiety over Norway is such that the noted hedge-fund manager Kyle Bass said at a recent investment conference in Oslo that the nation "trades like an emerging market because of its dependence on crude," sparking additional debate about the impact of cheap oil on both Norway and other crude export-driven economies, including Russia, Iran and Venezuela.

Currency traders have been looking for quick ways to profit from the Norwegian krone's current volatility, with some recommending a buying of the currency against the dollar earlier this week in anticipation of a short-term bottom, or, alternatively, buying the New Zealand dollar against the krone on the theory that dairy exports would recover before crude did.

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Others are watching shares of Statoil, which remain under pressure alongside Norway's broader stock market—which is down nearly 10 percent since oil began dropping in late June—and wondering when the best time might be to buy.

Even so, any fears of an economic meltdown in Norway are overblown, according to some analysts.

"There's concern about Norway given the oil price decline," said Lasse Holboell Nielsen, Goldman Sachs European economist, in a telephone interview.

"We are somewhat above consensus in our growth forecast for Norwegian mainland growth," Nielsen added. "We think other people are a bit too pessimistic. Compared with some other big oil nations, Norway has the better institutions in place to protect the traditional economy from the extraction of a very large but temporary natural resource."

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One reason for that, Nielsen said, was Norway's unique sovereign-wealth fund, which has accumulated $830 billion since its inception in 1990, thanks to petrodollars earned from the country's crude sales and returns on its stock, bond and real estate investments. Up to 4 percent per year of the fund's assets can be spent by the government, providing a powerful stabilizing tool in times of turmoil.

In addition, the Norwegian central bank, Norges Bank, has left interest rates higher than many of their peers in Europe at a benchmark of 1.25 percent, even after a trim in December. That means that if crude prices remain under pressure, additional rate cuts could provide some ease to the system.

Reached via email on Wednesday and asked about Norway, Bass leavened what he had said at the Oslo conference a week prior. Norway's large sovereign wealth fund, he noted, "represents a SAVINGS [emphasis his] of approximately $150,000 for every man, woman and child that happens to be a Norwegian citizen. I think Norway is one of the very few producers that has miles of runway to effectively wait out the oil decline."

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