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Norway Central Bank, Slammed By Oil Plunge, Warns Of "Severe Downturn", Unexpectedly Cuts Rates
The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge. As Bloomberg reports, Oeystein Olsen said today in an interview after a press conference in Oslo, "our job now is that we need to prevent a severe downturn in the economy... that is presently the major concern of the board."
Olsen cut Norway’s main interest rate today by 0.25 percentage point to 1.25 percent, a move that shocked markets and sent the krone down almost 2 percent against the euro (weakest since July 2009). The decision came after almost three years of unchanged rates and marked a shift away from a policy that had sought to prevent excessive monetary easing from fueling house price growth.
Even after today’s cut, the bank sees a “50-50 chance” for another rate reduction next year, Olsen said.
Oil prices have plunged 44 percent from a June high, the worst decline since the financial crisis erupted in 2008. Norges Bank estimates oil investments will decline by 15 percent next year, with the risk of “spillover” effects on the rest of the economy and rising unemployment.
And as Nick Cunningham via OilPrice.com, this is why... since Norway depends on the oil industry for almost a quarter of its economic output and has built an $860 billion wealth fund from its offshore revenue.
New oil projects are being scrapped in Norway amid falling production and low oil prices.
Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.
Since 1990, Norway has diverted much of its oil earnings to a sovereign wealth fund, which has become the world’s largest. The money, reaching $890 billion as of June 2014, amounts to $178,000 for every Norwegian citizen. The sovereign wealth fund helps Norway avoid some of the problems associated with the “resource curse” by investing capital abroad. But more importantly, the money is set aside to be saved and invested to help the country plan for the eventual decline of oil production, with the intention of transitioning to a more diversified economy that can take oil’s place.
The early cracks in Norway’s petrol-based economy are beginning to show, perhaps quicker than many predicted.
Energy analysts have explored in detail how the ongoing decline in oil prices – down 40 percent since June – might affect oil exporting countries like Russia, Iran, Venezuela, and other OPEC members. But even Norway, the model for using natural resources to build a modern wealthy economy, is not immune to the price fall.
Statoil, the mostly government-owned oil company, has seen its share price cut in half since July 2014. It is idling several offshore rigs as oil prices drop. Three rigs – the COSL Pioneer, Scarabeo 5, and Songa Trym – will be suspended until the middle of 2015 because of lower profitability. “These measures are necessary due to the overcapacity of rigs compared to the assignments we are prioritising. This situation is unfortunate, and we are doing what we can to minimise the extent of the suspensions,” Statoil procurement head Jon Arnt Jacobsen said in a statement.
To make matters worse, costs of developing new fields have been steadily rising. “The boom is probably over. But we’re not looking at a steep decline in investment or production,” Norway’s oil minister Tord Lien told Reuters in May 2014. “The costs are rising too high and too fast. The Norwegian costs have risen a little bit more than elsewhere.” Since those comments, oil prices have tumbled. Norway may in fact see a steep decline in investment.
Lower oil prices could force more than $150 billion worth of investments to be put on hold worldwide, according to an assessment by Norwegian firm Rystad Energy. Statoil is deferring a decision on investing $5.74 billion in the Snorre field, an offshore oil project in the Norwegian Sea. Also, Statoil’s Johan Castberg field, an estimated $16-$19 billion oil field in the Barents Sea, will be tabled for the time being. These costly projects won’t generate a sufficient return given today’s prices.
But the oil price decline is only accelerating a trend that is already underway. Even with high oil prices Norway was facing a tougher future due to years of waning oil production. Since 2001, Norway’s oil production has fallen by almost half, from around 3.5 million barrels per day down to about 1.8 or 1.9 million bpd in 2014.
The decline in investment is already pinching the labor market. Around 10,000 Norwegian oil workers have been laid off as the industry pares back spending, accounting for 10 percent of the sector’s total workforce, the Wall Street Journal reports. Oil workers are threatening to strike unless the government steps in to stem further losses.
And the way forward is murky. Despite its best efforts, Norway’s economy is overwhelmingly dependent on oil, which accounts for more than half of the country’s exports. Other export industries have struggled to develop as costs are too high – a classic symptom felt in countries suffering from the resource curse.
But resuscitating the sector may be difficult. With such a high cost environment, it doesn’t make sense for many companies in Norway to invest in new projects. Spending could drop by another 18 percent next year as project economics look poor.
Conversely, without investment, new production will not materialize in the coming years, leading to further deterioration for the sector as existing fields age and decline.
To be sure, Norway has its almost $1 trillion sovereign wealth fund to fall back on, so it is not as if its citizenry will be thrust into poverty anytime soon. Still, Norway may need to begin building a post-oil economy sooner than it thought.
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That $1 Tillion will disappear quickly if they would just hand it over to hedgefund managers, FX traders and a select few at Goldman. Good Luck to them. Can I interest them in a couple NY business towers as real estate never goes down in NY...just ask the last countries we fleeced...how are those Japanese doing by the way?
Screw'em
This is what Norway gets for backing the USSA financial war against Russia. Embrace the Suck.
LL i was always led to believe Skandalnavians were HIP BBBuT like SveeDenStag they really really are truly truly Fuuked Up der Ring Ring and TOTALellfin COMPROMIZZED.
WHOODA NODE DIs?
Hoorah! for the global recovery!!!
omfavn suget
But isn't the entire world working on being green, eliminating all use of petrol products, and therefore pushing demand for oil to 0???
That's the spirit! God help us if we ever discover a viable, clean abundant source of energy (cold fusion or whatever), the entire world economy will go to zero, commerce will immediately cease and everyone will starve to death.
hahahahahahaha Never going to happen in my lifetime. 200 million Indians on scooters going to be buying F150s and Astrovans soon
Damn Russia!
Zebulun shall settle the seashores.....you're on your own after that.
I thought Zeb was gonna run for predident
I hope that a good part of that $890 billion is going into purchasing gold.....and silver.....that's how I would be managing it.
Indeed! Norwegian small cities got royally fucked up north when Goldman and gang sold them big time "Mortgage Backed Securities", most of them part of subprime collections. What, these towns lost close to all their future operating funds. They borrowed money of future power genreation revenues and bought "Mortgage Backed Securities" sold by American financial consultents they hired to help them manage operating funds going forward.
Listen "Borrowed Money on Future income, to buy Mortgage Backed Securities, Sub-Prime"!!!!!
Maybe Norway can import more Muslims.
Norway is being "ukrained."
"Oil workers are threatening to strike unless the government steps in to stem further losses."
The fucking FSA is everywhere.
It's no wonder anything resembling capitalism or free markets are the most hated economic models of our times.
Why are unions anti-capital? They are simply the labor part of capital being managed to it's benefit by the owners just as the money and resources components are by their ownership.
Public Unions are anti Free-market. Private unions are capitalist and naturally self regulating because if the workers demand too much the company will go under. (Unless there is a large socialist government around to intervene in the private sector, which qualifies most 'private' unions in the US as public unions.)
Corporations with the rights of individuals are also anti capitalism. Free markets were never meant to give human rights to corporate enterpise, given special corporate legal rights by GOVERNMENT!
What do the unions want the gpvernment to do about falling oil prices?
This is the mentality of practically every citizen of every "1st" world nation. When the going gets a little choppy, just command .gov to smooth it over. Of course, .gov is completely completely compromised and immediately hands off the task to it's respective "central" banker, because as everyone knows, central bankers are omnipotent and sit at the right hand of the Great Sky Wizard himself!
Like lambs to slaughter...
As a major producer ( oil ) why do the stoopid sheep of Norway pay +30% more at the pump than taxed up the arse Englanders?
They probably didn't even realize it.
I love when MSM has comparisons of what different countries pay for gas. It is all BS. They pay the market price whether it is 100 per barrel or 60 per barrel. The difference is 90% based on taxes and not on the price of gas.
11 % of norwegians is a millionaire. 1 mio Nkr = 138000 USD. They can afford the higher standard of living.
Norway also has a very bubblicious real estate market... 25% of norwegians have a debt of 5 mil. NOK or more.
@WTFUD
As a major producer ( oil ) why do the stoopid sheep of Norway pay +30% more at the pump than taxed up the arse Englanders?
I think that vehicle insurance is paid at the pump!
One of the scad countries does it.
damn ... The coal mine is filling up with almost dead canaries.
Speaking of dead birds. A Screech Owl hit my car last night on the way home. Thunk!
Of course, me being a rescue guy, I pulled over and picked it up to nurse it back to health. Put him on the floor of the car and drove home (only a quarter mile).
Got the wife and kids and a big box to keep him in. Well, it seems he was not quite as hurt as I thought so by the time I went to pick him up he had all his faculties back and was not happy with me.
One bite and two claws later I was able to let him on his way with bloody hands. Sucker was popping his beak at me and it was a LOUD snapping sound. Gonna have to put owls in the same class as snapping turtles now. Be verrrrrry careful while handling. Glad it wasn't a Great Horned Owl.
pods
Owls are predators . We bird hunters detest them .... their prey includes eggs and chicks of pheasant, quail and ducklings. They are fish and game protected. Therefore, I am saddened your accident victim got away.
Merry Christmas anyway, pods !
I once saw a great horned owl take a dove on the wing. It was SILENT. Right overhead and all I heard was a slight whoosh and a puff of feathers. A sight to see.
I'd worry more about cats, fox, possums and rats than owls. Owls eat many of those too. Everything is a web. Habitat is the key. Our lands in NY are still chock full of grouse. I still poop a little when I walk up too close to one before it blows, especially in the dark! :)
Merry Christmas!
I see a great horned owl in my back yard a couple times a year. I know he's there because the birds all start squacking and freaking out. Spootted him on my roof peak on evening staning about 18" tall. He left a pellet on my deck a little smaller than a golf ball.
Not something I would fuck with.
A friend of mine was in her kitchen in Taos with her cat sunning himself on the windowsill. Late afternoon. Big orange tabby. Suddenly an owl appeared, grabbed the cat and flew away. My friend said she could hear the cat howling as it faded into the distance.
She is not a big fan of owls.
Time to call in those debts Norway? Eeeeeeeeeeverybody owes Norway some money.
Norway has a SWF owned and for it's citizens? How novel an idea.
In Amerika, the government spends $$ and puts it on our tab.
Amerikan Exceptionalism.
pods
THE GREAT RECOVERY!
Everybody get a shovel and start digging some graves.....
Well at least we get to fill up on cheap gas before going to work to pick up our pink slips, in advance of the massive oil shocks that are coming down the road.
Ah ah!
With all this focus on Russia, I had completely forgotten that Norway is hugely reliant on oil...
Great news!
Maybe those countries will eventually realize they need to work together against the U.S./Saudi oil complex.
WW slow down of economy is good for ... the economy. Pretty weird idea. Only the US is holding out somewhat longer, being the head of the WW $ ponzi scheme. When that corrupt head gets waterboarded ...
I imagine the U.K. (Scotland in particular) will be feeling quite the pinch as well from cheap oil.
http://www.theguardian.com/business/2014/nov/28/crude-facts-why-the-plun...
No. The UK is linked to the US and nothing can affect them adversely, every cloud IS a silver lining. The Anglo-Saxons are impervious to exogenous shocks and everything is a triumph of their enlightened leaders and world class financial institutions supported by the global propaganda sectors of Fleet Street and Hollywood.
Even thermonuclear war will have no impact on US/UK due to superior propaganda efforts and a largely docile, mass-medicated population dosed on fluoride and sugar
"Even thermonuclear war will have no impact on US/UK due to superior propaganda efforts and a largely docile, mass-medicated population dosed on fluoride and sugar"
Let's not forget the sodium. Americans and Brits love their salt...
LOL, comment of the day for me, Sandmann!
Israel has the Iron Dome, we have the Great Wall of Bullshit.
Sandman
Minor correction. It's high fructose corn surip not sugar. Mustn't leave out all the mercury and other goodies that come with your GMO food.
Both 25:
Table Sugar (Sucrose) still contains Fructose, which causes many problems for us down the road.
One of University of California's finer works...
Sandmann You capture the prevailing mood in the USA and UK to perfection! +100 Good job that!
But Stanley Fischer said that lower oil is good for all.
Now I'm confused.
He's speaking of the zio-interests.
If you're all confused #justasksteveatcnbs
Norveige Oil Minister TURD Lien.
Who the hell needs oil and gas! Properly dried "Cow Piles" burn efficently and with lots of heat...
Norway is loaded with hot women - lots of blondes.
Amen
Amen is another name of zion.
And zions are trying their best to rid the world of blondes and all native europeans for that matter.
Tylers! The sponsored financial content with the video is killing my bandwidth,crashing flashplayer and is very very annoying. Every time I type a comment while the video reloads,it jams up my computer,causing a time delay as I type.
Get rid of this crap or im moving on to another website,please and thank you.
It's definitely badly implemented and makes using the site very difficult. They should fix it on that basis alone.
Grow the fuck up with the childish threats.
Install Adblock Plus or a number of other browser add-ins.
I guess you'd rather bitch about something than be a big boy and handle it yourself.
The interwebz iz hard for some.
Isn't flash an add in? Seriously? Fix the badly implemented shit that runs the browser up to 2.5G of memory consumption. That's just bad software and a good website doesn't allow that kind of crap to keep going once notified of it.
i imagine that there is a large group who surf ZH from the office and thus being stuck with IE w/o ad block.
The same conversation will be taking place soon in my homeland (Canada) and as I commented upon in the Huffington Post article about it:
"While I don't look forward to the pain that will be inflicted upon the 99% (as it always is), seeing the country's oligarchs and their political puppets panicking is somewhat joyful.
Perhaps the oil price collapse will be the black swan event that begins the dominoes falling in the financial Ponzi perpetrated upon the masses by the elite and leads to a more sustainable economic arrangement not manipulated by the financiers and their captured political class.
I won't be holding my breath, but one can always hope..."
http://olduvai.ca
Ugh Boerg: What eat you this St Nick's? Rudolfrumpskin as Thor would have it.
So, how's that 'Scandinavian model' going that all the progressives point to as the successful example of their policies?
Norway has a massive STD problem according to my norweigan friend ;-) but pls do feel free to dip in and out of their oil pit with your drill bit
In other words, if we can’t generate revenue from oil sales we’re just going to print it.
We’ll color me red and slap me sideways Oeystein, why didn’t we do this before?
More liquidations hitting markets in the next few months, maybe unintended consequences or maybe not. Guess we will see.
Near 1 Trillion of funds ? Well that will get eaten fast with their unsustainable welfare state model...
the solution here is clearly for the federal reserve to start buying crude on the open market. /s
Apparently Whiting bought Kodiak yesterday.
Saudi break even cost of production is $2.
our job now is that we need to prevent a severe downturn in the economy
You just went full retard.
Why on earth don't they just pay off their national debt? They've got about 5 times their debt in the sovereign wealth fund. Just pay it off and be debt free.
Why would you do that ? It would destroy pension funds and banks
Jens Stoltenberg looking for US passport
Higher prices are bad.
Lower prices are bad.
US and Iran bombing the same enemies...
It's 1984 all over again.
Norway has a sovereign wealth fund.
The US has a sovereign debt fund.
One man's poop is another man's foie gras.
Knuckles
Or in this case one man's poop is another man's lutefisk.
amounts to $178,000 for every Norwegian citizen......
thats app. as much, as the proportion of debt of every us tax payer.
Release Norways sovereign wealth fund! That's what it's there for shurely???????????????
Keynesian Fools! Further cuts in interest rates will only delay the popping of the Norwegian housing bobble, and the cheap krona will then destroy their non oil industry they so desperately now need. They should up the rates pop the housing bobble and get to work. If they follow this road low rate/stimulus to the end, they will empty their SVF and totally fuck up the country within a decade or two.
How does a cheap krona weaken their domestic firms? The reverse surely....
The valueadding industry rely on a lot of imports of semifinished goods, mashines, and raw materials, it will get alot more expensive. The profit margin will decline. In the long run no country ever got rich by importing finished goods and exporting raw materials. You have to go the other way around. A strong currency is alfa omega in the real game. A strong currency is a must. With the oil bonanza over they now need to focus the industrial knowhow from the oil industry towards manufacturing ships, and other exclusive shit asap before the bloated welfare state fucks them over.
join the idiots club norway.
no more free lunches
too bad
Being of Swedish extraction, I am familiar with the near neighbor to the west, Norway. They have had a fantastic run based on North Sea Oil, this has allowed society to be transformed from it's past of Fishing, Power Generation, Timber, Toursim. These left many on the border line of poverty, never really poor, but never able to get wealthy either. Sweden was much the same until after World War II.
My problem with Norway's long wealth run is that is has made life too easy. People grow up secure in knowing the oil wealth economy, much of it public sector, will take them in. A young Norwegian guy, was asked what he did for a living, he said, "like many, I attented meaningless meetings and handle meaningless paper as part of the oil funded public sector, or the oil funded private sector working under government contract." Get educated and then seek government administration or a job in the private sector that is subsidized by oil money or in a private company working on government contracted work. He said, "it is easy life", "but somehow boring" Immigrants do most of the work now, like servicing the retail economy, cleaning the offices, sweeping the streets etc, etc.
While Sweden struggels to promote industry and production of exports and service the internal consumer, with good success. The Norway side can simply buy what they need and want with oil money, and ignore real industrial production. Norway has for it's native peoples a huge system of employment, non productive employment in the paper pushing business.
A drop in oil might kick start Norway back to a more Swedish model. A model of diversified private sector enterprise out in the free markets of the world. Norway can live well on oil, but it sets the people up for becoming too disconnected from competitve enterprise in the world economy. I think a taste of low oil prices will force the youth to think about market forces again, and how to live in the global economy. Pumping oil and then employing people to do paper pushing work, busy work, if you will, is a dead end in the long term.
Some Norwegians may strongly disagree, that is typical for something a Swede would say about Norway. I'm sure they don't welcome my opinion at all!
To make matters worse, costs of developing new fields have been steadily rising.
More proof that cheap easy oil does not exist. Production costs rise because cheap oil is all pumped and burned. This will drive prices up again, low oil prices can last only so long. Give it a couple years, lets see where we are even 1 year from today!
Good comments there JB.
One non oil area that was doing pretty well was fish sales to China, but then they complained about civil rights, oops no sales. Then, quick to learn, they rapidly built up sales to Russia, but then they backed the US sanctions, oops no sales.
As a country they could afford that, just very hard on the now much poorer fishermen and fish farming companies.
Scotland picked up the China business and Russians are investing hard in their own farms.
So what if they are broke, they stilll got their looks.
I'm sitting in the middle of Norway's oil industry center right now, and here is what I see:
A nervous financial market where investors are waiting to see what measures the new conservative government will come up with. Because some kind of stimulus is nessecary, rate cuts just won't cut it. One in three Norwegian businesses are oil industry related, all depending on the financial health of Norway's main oil company, partly state owned, Statoil. Whos break even oil price is about $50.
Now, here's the big picture:
Everyone knows that the Norwegian oil reserves will run dry at some point, that the worlds energy consumption will change, and that the Norwegian economy will have to be restructured, we've known that for quite some time.
I think that's - at least partly - the reason why Norway still have waste areas of potential oil fields to explore: The Artics.
According to Norwegian authorities, these far-north areas may contain almost as many oil eqivalents as the Norwegian sea. But up until now, these areas have been protected for environmental reasons, officially. The former Norwegian social democrat government made several decisions on delaying the sale of licenses for oil drilling in the Barentz sea. The new right wing government now says it would start the license process. I believe, however, that holding back the licenses was a way to make sure that Statoil would be ready to compete with the worlds other major oil companies for the licences that has to be given on premises like technological expertice, knowhow, security and financial strenght.
Statoil is so far the only oil company that's been given permission to start the test drilling in the Barentz sea.
As I descibed it in a blog post in 2009: In reality, it is a gigantic bail-out package to Statoil (including the majority of Norwegian industry). Having the same effect on the Norwegian oil industry as the bailout package to the financials - prolonging the difficult changes and tough decisions that are inevitable for restructuring of the economy.
Unfortunately, this may not work because of the accelerating developments. The scenario that most people thought was at least 10 years ahead of us, seems to be approaching unpleasantly fast. The US National Intelligence Council describes this tectonic shift their report “GLOBAL TRENDS 2030: ALTERNATIVE WORLDS”.
"With shale gas, the US will have sufficient natural gas to meet domestic needs and generate potential global exports for decades to com. Increased oil production from difficult-to-access oil deposits would result in a substantial reduction in the US net trade balance and a faster economic expansion. Global spare capasity may exceed over 8 million barrels, at witch point OPEC would loos price control and crude oil prices would collaps, causing a major negativ impact on oil-exporting economies."
(http://rationalarrogance.wordpress.com/2013/01/18/world-soon-to-be-run-b...)
As mentioned, Statoil's (and Norway's) break even oil price is about $50. Most analysts are trying to figure out where the price will be stabilize. The problem is: It won't.
Based on my observation of the financial markets over the last 3o years, I'm pretty sure that the market will begin to test both companies and prices as the uncertainties unfold, causing heavy volatility in currencies like the Norwegian krone, the interbank rates, CDS, and so on....leading to panic reactions in OPEC, local governments, only to increase the stress. Much like the pattern of the Euro crisis.
As for the Nowegian oil fund: If your money manager placed all your savings in stuff like Lehman Brothers, BP and Greek bonds - how much fatih would you have in his (or her's) financial judgements?
Anyway - Happy Holidays, folks!