Banking and Capital Markets

Norway's Central Bank has recommended oil and gas holdings are removed from its sovereign wealth fund

Oil rig pumpjacks, also known as thirsty birds, extract crude from the Wilmington Field oil deposits area where Tidelands Oil Production Company, which is owned by Occidental Petroleum Corporation (Oxy), operates near Long Beach, California July 30, 2013. Occidental Petroleum posted a smaller-than-expected quarterly profit on Tuesday, hurt by lower oil prices in the Middle East and North Africa, where the fourth-largest U.S. oil company is considering an exit. REUTERS/David McNew  (UNITED STATES - Tags: ENERGY BUSINESS)

Norway's bank is dropping its holdings on oil and gas to make the government's wealth less vulnerable. Image: REUTERS/David McNew

Thomas Colson
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Banking and Capital Markets

Norway's central bank has recommended that the Ministry of Finance remove oil and gas holdings from its $1 trillion (£760 billion) sovereign wealth fund – a move that could have significant consequences for the sector.

In a letter to the Ministry of Finance on Thursday, Norges Bank recommended the removal of oil and gas stocks from the Government Pension Fund Global (GPFG). The fund, which was built on the back of Norway's oil wealth, has approximately £27.73 billion, or 6%, invested in oil and gas companies.

Image: Statista

The bank said the move would make the government's wealth less vulnerable to a permanent drop in oil and gas prices.

"The return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices," said the bank in a statement.

"Therefore, it is the Bank's assessment that the government's wealth can be made less vulnerable to a permanent drop in oil prices if the GPFG is not invested in oil and gas stocks."

"This advice is based exclusively on financial arguments and analyses of the government's total oil and gas exposure and does not reflect any particular view of future movements in oil and gas prices or the profitability or sustainability of the oil and gas sector," said Deputy Governor Egil Matsen.

The fund has holdings in firms including Shell, ExxonMobil, Chevron, and BP.

Mindy Lubber, president of sustainable investment non-profit Ceres, told Bloomberg: "This is an enormous change. It’s a shot heard around the world."

The proposal continued to shake equity markets on Friday morning, with the Stoxx Europe 600 Oil and Gas index down 0.17% in early trading. Shares in Shell B, Exxon, BP, were also down.

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