The world’s largest sovereign wealth fund—Norway’s US$1-trillion fund that has amassed its wealth from oil—earned US$84 billion in Q1 in the “strongest quarter ever”, boosted by technology and oil and gas stocks.
The Government Pension Fund Global, as the so-called ‘oil fund’ is officially known, said in its Q1 quarterly report on Friday that it returned 9.1 percent, or US$84.16 billion (738 billion Norwegian crowns), in the first quarter of 2019.
In equity investments, which accounted for 69.2 percent of the fund at the end of Q1, technology stocks were the top performers with a 17.6-percent return, followed by oil and gas and industrials, which both returned 14.1 percent.
“The strong performance by oil and gas stocks was boosted by higher oil prices, due partly to the prospect of production cuts from OPEC and Russia and decreased output in Venezuela due to political unrest,” the fund’s report reads.
“This is the fund’s best quarterly return measured in kroner ever. As a major equity investor we must be prepared for large fluctuations in the fund’s market value in line with developments in global stock markets,” said Yngve Slyngstad, CEO of Norges Bank Investment Management.
The fund—created three decades ago to safeguard and manage Norway’s oil wealth for future generations—made headlines earlier this year, when the government proposed that the fund divest from oil and gas exploration companies.
The move by the Norwegian government and the fund comes at a time when investors are increasingly pressing major oil companies to start taking climate change seriously and to prepare their business portfolios for a world of peak oil demand, whenever that may come.
Norway, however, claims that its decision is motivated by financial reasons, with the country aiming to cut exposure to the oil price risk. More importantly, the fund will not be divesting from any of the Big Oil firms.
By Tsvetana Paraskova for Oilprice.com
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Norway’s attitude to oil is indeed very odd to say the least. It wants all the wealth that oil can generate but once it has enriched itself, it starts to take a disdainful attitude to the very resource that made it one of the richest nations on earth.
In deciding to divest of its oil and gas stocks from its portfolio, the Norway’s fund must have been receiving wrong environmental advice rather than a viable financial and economic advice. And for the fund to give an excuse of trying to make itself less vulnerable to permanent drop in oil and gas prices is not based on good financial and economic advice either. Such a decision beggars belief when oil and gas are the biggest earning commodities in the world.
If Norway is preparing itself for a post-oil era, then it is on the wrong track since there will never be a post-oil era throughout the 21st century and far beyond.
Moreover, if oil is the fuel for the global economy, then oil’s value, importance and financial rewards are assured well through the 21st century and far beyond.
It is possible that Norway is trying to cosy up with the environmental lobby or is receiving an unsound environmental advice rather than a sound financial advice.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London