Oeystein Olsen, Norway’s central bank governor, rejected industry warnings that oil at about $100 a barrel is too cheap to support growth in western Europe’s biggest crude exporter.
“We have been quite lucky and we have benefited from relatively high oil prices, $100 per barrel or just above,” Olsen said in a Feb. 28 interview after a press conference in Oslo. “Given other developments all over the world, we should be relatively content if this level remains.”
Statoil ASA, Norway’s biggest crude producer, said last month it would cut planned investments by 8 percent over the next three years as the stagnant price of oil weighs on cash flow. The decision triggered a warning from the government, which owns 67 percent of Statoil, and has said that planned projects must go ahead and that it may seek to attract more competitors.
While the central bank bases its gross domestic product forecasts on economic output adjusted for oil and gas income, Norway’s energy industry feeds through to all areas of its economy. Olsen has said that the government needs to cut its fiscal spending rule, which sets limits on how much of the $840 billion wealth fund can be used, to 3 percent from 4 percent.
The spread between Norway’s generic 10-year note and similar maturity benchmark German debt has widened 17 basis points this year to 123 basis points, compared with an average of 73 basis points over the past five years.
A rise in oil prices and oil activity together explain 35 percent of the growth in Norway’s mainland economy, according to a study from the Norwegian School of Management. Wage growth in the oil sector provides significant spillover effects on the rest of the economy, according to the study by Professor Hilde Bjoernland and Leif Anders Thorsrud.
DNB ASA Chief Executive Officer Rune Bjerke said last month that lower oil prices pose a risk to Scandinavia’s richest nation. He sees oil prices at about $104 a barrel at the end of this year with a gradual decline to $90 by 2020.
Brent crude has slid about 14 percent to $109 a barrel from a high in 2011.
Still, a drop in crude prices may provide some relief to the non-oil economy. Norway is struggling to absorb an oil industry that has driven up production costs across the economy. That’s threatened competitiveness for some of its biggest exporters. They’ve responded by urging the central bank to do more to weaken the currency.
Olsen has countered that companies need to find other ways to improve competitiveness. He said last month Norway must start preparing for an economy without oil and that investment in the petroleum industry is leveling off and output growth as “slackened” in the mainland economy.
The central bank has shown less willingness to tackle a strong krone through rate cuts after fighting currency appreciation in 2011 and 2012 with easing.
The stagnant oil price after a rally in 2011 has coincided with a krone’s depreciation since the end of 2012. That helped cushion a slowdown in the economy last year. Norway has been weighed down by record consumer debt and declining house prices after a five-year rally reversed. In 2013, the mainland economy, which excludes oil, gas and shipping revenue, expanded 2 percent, slowing from 3.4 percent in 2012.
Norway’s Prime Minister Erna Solberg said last month the government will have “competitiveness at the forefront of our plan while it makes ‘‘sure that our fiscal policies don’t strengthen the krone.’’