Why Has Norway Tapped Its Oil Fund?

20 years ago, Norway made a move that crystallised the country as bona fide example in astute financial planning. The establishment of its sovereign wealth fund made global headlines, and two decades later it’s built itself a ‘rainy day’ fund of over US$826 billion. Now, the Scandinavian nation has announced that its made its first withdrawal from the fund, in a bid to manage the effects of an economic downturn.

Combating the spiralling oil economy

In January the government confirmed that it had withdrawn US$780 million to fund public spending. So why did the nation feel the need to dip so deep into its savings? In the wake of falling oil prices, Norway has been plunged into an economic downturn. Since mid-2014 the price of crude has dropped by 70%, which has had a knock on effect on the country’s mining and manufacturing sectors. This has resulted in a diminishing national budget, and a slumping national economy. The US$780 million cash injection is intended to counteract the downturn, and inject cash back into local markets.

"It is, however, not surprising that oil revenues eventually would become lower than the real return on the Fund, resulting in a net transfer from the fund to the budget," commented state secretary Pall Bjørnestad in a recent statement to CNBC.

Will Norway replenish or double dip?

From a per capita standpoint, Norway's sovereign wealth fund is one of the largest on the planet. While the US$780 million withdrawal does seem like a weighty sum, when compared to the overall balance of US$826 billion it’s merely a dent. Should oil prices spike and economic prosperity return, Norway could quickly replenish the extraction. If not, it may find itself having to dig deeper.

"As long as spending of oil revenues is within the expected real return on the Fund, the Fund will over time not be tapped in real terms," he said.

As well as being one of the biggest oil producers in the world, Norway is also famous for its stunning natural scenery. This goes hand in hand with a responsibility to ensure its operations are as clean and green as possible. For more insight into environmental concerns within the oil and gas sector, ‘Benzene - It’s Time for Continuous, Real-Time and Specific Monitoring’ is a must read article. Led by Managing Director at Ion Science Duncan Johns, it discusses recent benzene scandals, as well as new technologies available for the implementation of upgraded US Environmental Protection Agency standards for the monitoring and control of benzene concentration levels.

Image via Flickr Creative Commons. Photo credits: ruthhelen