Stockholm Øystein Olsen chose drastic words: “The situation of the Norwegian economy is so serious that we have to do everything we can.” It is rare for the Norwegian central bank boss to be so pessimistic. But the situation in his country is actually tense.
The corona crisis and the dramatic drop in oil prices have given Norway a rare economic slump. To cushion the consequences at least a little, the central bank surprisingly lowered its key interest rate from 0.25 percent to zero percent last Thursday.
“We expect the Norwegian economy to decline by five percent this year – a decline that we have not seen since the Second World War,” said Olsen, explaining the step, which is unique in the country’s history: the key interest rate has never been before zero percent.
Norway is considered one of the richest countries in the world thanks to its oil and gas reserves. But the largest oil producer in Western Europe not only suffers from the consequences of the corona pandemic, but also from the low oil price. In order to at least slow down the fall in prices, the country will cut back its production significantly from the coming month to December this year.
“We will cut Norwegian production by 250,000 barrels a day in June and 134,000 barrels a day in the second half of the year,” said Oil Minister Tina Bru at the end of April. As a result of the measure, Norway will produce 300,000 barrels less per day at the end of the year than originally planned by the oil companies.
Norway is neither part of the Organization of Petroleum Exporting Countries (Opec) nor the Opec plus group, which also includes Russia and other countries, and often follows its own path. The fact that the country has now followed the Opec recommendations for the first time in almost twenty years shows in the opinion of analysts, but also the responsible politicians, how serious the situation in the northern European country is.
“We are currently facing an unprecedented situation on the oil market,” said Oil Minister Bru. Analysts expect the country to withdraw large sums from its oil fund to fund the various billion-dollar corona-related support programs. The world’s largest sovereign wealth fund flows from the oil and gas business. The fund currently manages around 10,320 billion crowns (930 billion euros) and is intended to finance the welfare state even after the oil and gas sources have dried up.
Loss for Equinor
The seriousness of the situation became clear last week when presenting the quarterly figures for the oil and gas group Equinor (formerly Statoil). The company had a net loss of $ 710 million. A year ago, the Norwegian group made a profit of $ 1.7 billion. And the near future also looks anything but rosy. Equinor boss Eldar Sætre does not believe that the price increase predicted by some analysts of around $ 50 per barrel of oil will soon be reached.
“There is still a huge oversupply of oil and it may take until 2022 to see the market normalize,” he said. The analysts of the independent Norwegian market research company Rystad Energy do not expect the oil price to recover anytime soon. This year, they expect “the price of Brent crude to average $ 30 a barrel,” as they wrote in their newsletter.
Until a significantly higher oil price can be achieved again, Equinor plans to reduce its investments in developing new fields. The long-term forecast of the largest Norwegian oil and gas company remains in spite of gloomy times: By 2026, the company expects an annual increase in production of around three percent.
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