Norway is set to use a record amount of petroleum revenues from its US$1-trillion oil fund – the world’s largest sovereign wealth fund – this year to counter the economic slump from the COVID-19 pandemic and low oil prices.
The government of Western Europe’s largest oil producer, whose wealth fund has amassed more than US$1 trillion from petroleum revenues over the decades – proposed on Tuesday a revised budget for 2020, which calls for using US$41 billion (419.6 billion Norwegian crowns) from the fund. This sum would account for 4.2 percent of the estimated value of the fund at the beginning of this year.
Norway has rarely used more than 3 percent of the Government Pension Fund Global, as Norway’s oil fund is officially known.
“‘Increased spending has been a necessity in the current situation – both to avoid an even sharper downturn and to help healthy companies through the crisis so they can create jobs and growth when normal circumstances return,” Finance Minister Jan Tore Sanner said in a statement.
Norway’s economy has been hit by the social distancing measures like every other country around the world, while the oil and gas sector – a major contributor to the economy – is also suffering from the low oil prices after oil demand crashed in the pandemic.
Last week, Norway slashed its key policy rate to 0 percent in a surprise move, citing the oil price crash and the sharp drop in economic activity as a result of the pandemic.
“The downturn is amplified by the severe impact of the pandemic on surrounding countries and by a sharp fall in oil prices. Lower oil prices have contributed to weakening the krone exchange rate,” Norges Bank said in a statement, after delivering what analysts described a ‘surprise’ cut by 25 basis points to zero.
In a bid to support global efforts to prop up oil prices and ease the glut, Norway has decided it would cut its crude oil production by 250,000 bpd in June, and then maintain a 134,000-bpd lower rate of production for the rest of 2020. This is the first time Norway has joined oil production cuts since 2002. Then, Norway reduced its production rate by 150,000 bpd over the first half of the year, after oil fell below $20 a barrel following the 9/11 terrorist attacks.
