Oil panic makes way for new krone depreciation

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Turbulence in oil market helps Norwegian salmon exports.

After Saudi Arabia’s pre-warned “oil tsunami” swept across the market in April, oil prices have again slumped. For the US lightweight oil, West Texas Intermediate (WTI), prices fell to the bottom Monday. Then, for a short period, WTI was traded at a negative price, that is, one could get paid to receive oil.

The North Sea oil, Brent, has not received as much of a beating, but traded early Wednesday morning at USD 16.46 a barrel, a USD 5.62 price premium to WTI. One must go all the way back to 1999 to see such low prices for North Sea oil.

North Sea oil Brent spot prices and its movements so far in 2020. Illustration: InFront

For a currency such as the Norwegian krone, which is closely linked to revenues from oil exports, price developments are serious and quite dramatic. During the night, the krone has depreciated to NOK 10.67 and NOK 11.57 against the US dollar and euro respectively.

Dollar and euro are the two most important settlement currencies for salmon. A weakened krone means, all else being equal, that salmon will be cheaper for foreign buyers.

John Browne, who was BP’s long-time chief executive (formerly known as British Petroleum), told the BBC that the situation in the oil market has many similarities with what happened in the mid-1980s when overproduction led to oil prices staying low for 17 years.