Norway, Europe's leading oil producer, on Monday cut its economic forecast for next year as a slump in oil prices has continued this week.
“We will still have economic growth in Norway in the years to come,” Erna Solberg, prime minister, said yesterday at a press conference in Riga, according to Bloomberg News. “We will now look if the impact makes it look a little bit smaller, we don’t have a new figure yet.” The government in October predicted 2% economic growth for 2015.
No need for tears: Norway's wealth fund is worth about $860bn.
Meanwhile, oil is expected to remain at about $65 a barrel for half a year until OPEC’s output changes or demand expands, according to Kuwait Petroleum Corporation.
This morning in Asia, the Japanese yen rose as dealers sold Australian and New Zealand dollars.
Brent crude lost 44 cents to $65.65 a barrel, while US crude futures lost another 31 cents to $62.74. The two benchmarks plunged 4% on Monday on expectations that a deepening oil glut would keep prices under pressure into the new year.
An Economist blog post says four things are now affecting the picture. "Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—have not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia.
Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground."
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