It turns out that oil prices have gotten so low that even very wealthy nations like Saudi Arabia and Norway are going to have to tap into their sovereign wealth funds to support their annual budgets this year or next. That will likely put Norway in a particularly difficult situation here in a year or so, as by law government spending from oil revenue is limited to 4% of the fund.
Kyle Bass on Norway
Kyle Bass, the founder and chief investment officer of Hayman Capital Management LP, was in Oslo Tuesday to attend a Skagen AS conference. He spoke to of Bloomberg in a brief interview.
Kyle Bass said that Norway “trades like an emerging market because of its dependence on crude,” Billionaire hedge fund manager Bass also noted “A traditional cleansing is a good thing in the long run, it keeps government spending in check. Politicians are going to have to figure out how to cut back on the spending that they shouldn’t have been doing in the first place.”
Kyle Bass also commented he would not be shocked to see oil slide all the way down to $40 per barrel in the next few months.
However, even if Norway does have to make some economic adjustments in the near future, the nation’s wealth puts it in a “spectacular position” for the long run, Bass pointed out. That will be the case for “for many, many years to come,” he said.
Oil is Norway’s main economic engine
Norway is Western Europe’s biggest oil energy producer, and relies on oil and gas to generate more than 20% of its economic output. While that percentage is relatively small compared to other major global oil producers Saudi Arabia, Russia, Iran or Venezuela, the nation’s economy has been hammered by a 55% drop off in Brent crude prices over the last six months. The Norwegian krone has lost 10% against the euro and 21% against the dollar since early last summer. Moreover, Norway’s main OBX stock index is down more than 10%.
The huge decline in crude oil prices has clearly caught the country’s central bank off guard. Central Bank Governor Oeystein Olsen commented in an interview earlier this week that he hadn’t expected oil to breach $55 a barrel when the bank published its predictions back in December.