Norway's $1 trillion oil fund may turn its back on oil

Posted November 17, 2017

Two years of weaker oil prices has cut into the income of numerous world's largest sovereign-wealth funds, which are in largely resource-dependent countries like Saudi Arabia and Kuwait.

It said the step would make the country "less vulnerable to a permanent drop in oil and gas prices", and its advice was not based on a price forecast or the sector's sustainability.

Norway's sovereign-wealth fund said on Thursday it may stop buying oil and gas stocks, a move that would deprive the energy sector of investment from a $1 trillion asset manager.

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or stainability of the oil and gas sector", Norges Bank's deputy governor Egil Matsen was quoted as saying in a statement.

Around 6% of the fund, worth £28bn, is invested in oil and gas stocks.

Going forward, the Ministry of Finance will obtain further information and notify Parliament about the ongoing work in the Report on the Management of the Government Pension Fund, to be submitted in the spring of 2018. In periods of stable oil prices, the returns on oil and gas stocks have largely moved in tandem with the broad equity market.

Greenpeace Norway welcomed the central bank's intervention, but said Norway must now also cease exploring for oil in the Arctic.

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In September, the fund value reached $1 trillion for the first time after being boosted as the world's major currencies strengthened against the US dollar, combined with strong equity markets.

The wealth fund, which controls about 1.5 percent of global stocks, proposes dropping %37 billion of shares in worldwide giants such as BP, Exxon Mobil Corp., Royal Dutch Shell Plc. and other holdings.

It aims to reduce the exposure of the fund - and therefore the Norwegian government - to oil price fluctuations.

But Norges Bank said that investing money back into the energy sector meant the government's exposure to the price of crude was too high, particularly given the country's majority stakes in Statoil ASA.

Matsen emphasised that the recommendation is to remove oil and gas stocks from its benchmark index but that it wants to keep them as part of its "investment universe".

At the earliest, the ministry's first opportunity could come in the spring, with a vote in parliament in June.