Oil price, Crown exchange rate | Did you think the oil price was low? For Norway, it has almost never been higher

After the financial crisis, oil prices skyrocketed. Over a period of four years, the price was fairly stable at around $ 110 per barrel.

Since then, one has never been near the 100s. Prices have varied greatly through two crises. So far this year, the price has been in the 60s.

But measured in Norwegian kroner, the oil price is now at a level corresponding to the golden age: The oil price has now exceeded 600 kroner per barrel by a solid margin, about the same as was seen in the period 2011-2015.

This is sky high above the level the government expected when the state budget was laid: the government thought last year that the average oil price this year would be 424 kroner a barrel. It has never been so low this year.

Massive krone depreciation

The reason for the special development is that the krone has weakened very much in recent years. 10 years ago, one could travel to the United States and think that one dollar was just over 5 kroner. A 100-dollar dinner was 500-600 kroner including tips.

But in connection with the fall in oil prices in the autumn of 2014, a massive weakening of the Norwegian krone began. In just over a year, the price of the dollar rose by 40 percent, from 6.2 to 8.7 kroner. At worst during the pandemic, it was well over 10 kroner.

The euro has not fared any better: The price has risen from 7.2 to 10.4 kroner.

Everything that is imported to Norway becomes more expensive, everything Norway sells abroad we get paid better for.

– The krone exchange rate has generally weakened since the mid-2010s, at the same time as the oil price has fallen. This means that the oil price measured in kroner has been more stable. In the same way, there has also been a tendency for the krone to weaken when there is turmoil in international financial markets and when international share prices fall. In this way, the krone exchange rate acts as an automatic stabilizer for the Norwegian economy, the Ministry of Finance states in an e-mail to Nettavisen.

Also read: The mood has changed – the crown to the bottom

Why has the krone weakened so much?

Previously, the krone exchange rate and the oil price were closely linked, but after 2014 the connection has become less clear: the krone appears to be permanently weakened, although there is still a connection.

Currency strategist Magne Østnor tells Nettavisen that the background for the weakening of the krone is complex:

– I think it may be appropriate to divide drivers of the krone exchange rate into two: those who are more short-term in nature, and those who are more long-term. The latter help to create the underlying trend, while the former create fluctuations around it, he says.

The short-term ones are largely about current news, key figures, the stock exchange and the like. While the long lines are about major trends such as productivity, competitiveness and the balance of the foreign economy.

– Norway had for a long time an extremely favorable development in the terms of trade. In line with China’s entry into the world market and increased globalization, import prices fell. At the same time, the price of our most important export product multiplied. During this period, productivity growth was good, growth was high and interest rates were high compared with many other countries. You can say that both the short-term and long-term drivers were involved in pulling the crown to record-breaking levels, he says.

– Norway has lost cost competitiveness

Now the situation is quite different:

– The front subject is intended to help the competitive sector set the guidelines in the wage settlement, so that we do not lose too much competitiveness. But the industry is very much characterized by the petroleum sector, parts of the industry have for many years been able to pay significantly higher wages than other sectors. This has thus lifted wage growth in the entire economy, and meant that Norway has lost cost competitiveness.

– At the same time, we have seen that the public sector has increased and constitutes a larger share of the economist. This means that the competitive sector must increase wages in order to attract labor. In addition, wage growth in the public sector has been higher than in the rest of the economy for some time. A final factor, the ever-increasing phasing in of petroleum revenues, obviously explains some of the developments in the public sector, but it has also helped to lift imports. It is also a factor that contributes to weakening the krone over time.