How Falling Oil Prices Are Impacting Sovereign Wealth Funds

offshore111To weather the boom and bust cycles of crude oil commodities, many oil-rich countries and states formed sovereign wealth funds to accumulate assets (see – sovereign wealth fund definition). At the beginning of 2008, sovereign wealth fund assets stood at US$ 3.43 trillion. As of March 2015, sovereign wealth funds have over US$ 7.1 trillion in assets under management. Of those assets, US$ 4.29 trillion come from oil & gas sovereign wealth funds. Sovereign wealth funds such as Norway’s Government Pension Fund Global (GPFG), Kuwait Investment Authority (KIA) and Qatar Investment Authority (QIA) were created to buffer their government’s fiscal budget from oil price volatility.

Sovereign wealth fund profiles

During the summer of 2014, oil prices hovered and peaked around US$ 115 per barrel. Months later, oil prices plummeted to the 60 dollar price range, roiling stock markets, energy exchange-traded funds (ETF), junior energy exploration companies and oil production projects. To make matters worse for oil producers who operate at the US$ 80 per barrel break-even price range, OPEC announced it will not restrain production to fight the decline in oil prices. Before the oil crash, a number of oil-based economies donned Panglossian spectacles when it came to their countries fiscal budget – spending lavishly on social programs and expensive infrastructure. Fallen oil prices have shifted the views of higher-risk countries exposed to oil wealth.

Non-US Sovereign Wealth Fund Ranking – Risk Levels of Depletion and Break Even Prices

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