Page 8 - Euroil Week 19 2020

EurOil COMMENTARY EurOil
Norway withdraws $41.4bn from
oil fund to balance books
Norway is breaching its self-imposed annual limit on withdrawals
NORWAY
WHAT:
Norway is withdrawing $41.4bn from its oil fund to pay for its COVID-19 response and make
up for lost petroleum revenues.
WHY:
Oil prices and production cuts will result in budget contributions from oil and gas more than halving
in 2020.
WHAT NEXT:
Norway says the added funds will support its economic recovery.
NORWAY has said it will withdraw NOK420bn ($41.4bn) from its oil fund to cover its strained budget this year, exceeding its cap on spending, in order to steer its economy through the coro- navirus (COVID-19) crisis. It has also taken the opportunity to dump some unwanted coal assets.
The Nordic state typically runs a budgetary surplus but is facing a NOK382bn shortfall this year as revenues from oil and gas, which usually contribute around 20% of the total, are forecast to more than halve to NOK125.8bn, owing to weak prices and production cuts.
At the same time, Norway has jacked up spending in order to steer its economy through the crisis, describing the economic fallout from the pandemic as its “most severe setback ever in peacetime.”
“Increased spending has been a necessity in the current situation – both to avoid an even sharper downturn and to help healthy com- panies through the crisis so they can create jobs and growth when normal circumstances return,” Finance Minister Jan Tore Sanner said. “As we carefully begin opening up and relaxing infection control rules, we will have to adjust the existing measures and eventually introduce new ones to get the economy up to speed and people back to work.”
Norway is withdrawing around 4.2% of the
total value of its $1 trillion Government Pension Fund Global, the largest sovereign wealth fund in the world, in order to cover these costs.
Spending could rise further, as the govern- ment is due to unveil a new crisis package in late May or early June to add to the measures unveiled in March and April.
“We must also keep in mind that the chal- lenges we faced before the coronavirus crisis have not disappeared. Our solutions going for- ward must incorporate long-term perspectives.”
Metrics
Norway achieved modest GDP growth last year of 2.3% but its economy is expected to shrink by 4% in 2020 as a result of the COVID-19 pan- demic, according its finance ministry. Unem- ployment is due to creep up to 5.9% from 2.2%.
Oil prices have shed more than half their value since the start of the year, as a result of demand losses caused by travel restrictions and other measures to slow COVID-19’s spread. This has resulted in taxes, fees and other revenues Norway receives from the petroleum industry plunging. Its finance ministry estimates that prices will average only $33.2 per barrel in 2020, compared with $64.1 in 2019.
Norwegian producers are also set to reduce supply by 250,000 barrels per day (bpd) in June,
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w w w . N E W S B A S E . c o m Week 19 14•May•2020