Norway wants out of oil!
Norway’s sovereign wealth fund, worth US$1 trillion, said it wants out of petroleum stocks. Why is this surprising? Well, the company has made its fortune from pumping oil and gas over the last two decades.
Norway’s sovereign wealth fund skyrocketed to success on the back of these resources. As the map below shows, the pockets of oil and gas in Norway are abundant.
Source: Good Oil Job
So, you might be wondering why Norway’s wealth fund that was built on oil, want out of oil stocks. Especially when the price of oil continues to climb higher. In the latter half of this year, Brent Crude Oil (left) and WTI (right) have both risen significantly.
Oil producing nations like Saudi Arabia and Russia have agreed to continue cutting supplies. And countries like China, with huge populations, continue to increase their demand for oil as a source of energy.
Yet according to Bloomberg, higher prices is the reason why Norway’s sovereign wealth fund is reducing their exposure to oil stocks. They don’t want to feel the adverse effect of falling oil prices. As reported by Bloomberg:
‘Norway, which relies on oil and gas for about a fifth of economic output, would be less vulnerable to declining crude prices without its fund investing in the industry, the central bank said Thursday. The divestment would mark the second major step in scrubbing the world’s biggest wealth fund of climate risk, after it sold most of its coal stocks.
‘“Our perspective here is to spread the risks for the state’s wealth,” Egil Matsen, the deputy central bank governor overseeing the fund, said in an interview in Oslo. “We can do that better by not adding oil-price risk.”
‘The plan would entail the fund, which controls about 1.5 percent of global stocks, dumping as much as $40 billion of shares in international giants such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The Finance Ministry said it will study the proposal and decide what to do in “fall of 2018” at the earliest.’
Oil & Gas Stocks A No Go?
Does this mean you should avoid oil and gas companies for the near future? Not really. Norway’s wealth fund is getting out of oil and gas simply to keep their portfolio in an arbitrary balance.
Norway has a 70% threshold exposure to oil and gas. Thus, if prices continue to rise and the fund continues to track indexes, they’ll exceed the 70% mark. As Bloomberg explains:
‘The fund has a small amount of leeway to make individual investments and wants to keep oil and gas in its “investment universe,” he said.
‘The fund said it doesn’t expect returns or market risk to be affected “appreciably” by its proposal, emphasizing that cutting exposure to the energy industry would allow it to crank up investments in other sectors. Finance Minister Siv Jensen said the government will give the plan careful thought.
‘“This must be thoroughly assessed, I am not prepared to conclude in advance,” said Nikolai Astrup, leader of the finance committee representing the ruling Conservatives. “It’s important that the fund is managed in a way that’s predictable and long-term.”’
Junior Analyst, Markets & Money
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