Even Norway’s Sovereign Fund is at Risk Now


Sovereign wealth funds that sprung from countries where the price of oil is pivotal for the health of fiscal budgets are at greater risk today than 5 years ago. Why? First, the global oversupply of oil is rampant, a blessing for energy-constrained countries like India and a nightmare for the Gulf States. The price of Brent crude oil, the world’s benchmark oil price, fell below US$ 50 a barrel recently, sinking to 6-month lows. At that price, many oil-producing nations will either have to sell-off assets in vehicles such as sovereign wealth funds, print currency or raise debt to fund their respective budgets. Record oil production in the United States had led to the Gulf region producing more oil as well. In July, OPEC production was at 31.5 million barrels per day, an increase of 100,000 from June. Higher oil output came from Angola, Iraq, and United Arab Emirates. Furthermore, Iran is reported to have augmented oil production to 2.86 million barrels a day. With an estimated 40 million barrels of oil in storage tanks, the result of an embargo lift on Iran will send shockwaves to energy markets.

A quick sell-off of European unlisted equities could send a shockwave into stock markets.

On the demand side of the equation, tepid U.S. and Chinese economic data have smacked oil prices downward. In China, the Caixin Manufacturing Purchasing Managers Index, a trusted gauge of nationwide manufacturing activity, fell to 47.8 in July from 49.4 in June, the lowest level of the index since 2013. An index score under 50 indicates a contraction in activity. Bottom line, feelings of oversupply and shaky demand are key factors affecting the market prices of black gold.

Possible Selloff by Norway’s Sovereign Wealth Fund

Norway walked away with few bruises from the global financial crisis of 2007. However, prolonged oil prices at below US$ 50 a barrel has become the country’s kryptonite. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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