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Oslo Børs i vårsol

Credit: NTB / The Norwegian Stock Exchange Oslo Børs

Finance Blog

Einar Johansen

Einar Johansen is Portfolio Manager for DNB Norge og DNB Grønt Skifte Norge.

Einar Johansen joined us first time in 2001 as Portfolio Manager for Global and European equity funds. In 2016 he left the company to manage an investment portfolio at the private investment company Sabinum. After rejoing us in 2020 he became a part of the Norwegian Equity team, seeking out companies with low carbon intensities and companies transitioning into sustainable investments.

Einar holds MSc in Economics and Business Administration from the Norwegian School of Economics (NHH).


In the current period of oil price movements never seen before, and an oil sector on the Norwegian stock exchange severely influenced, it’s easy to think that Norwegian equities are nothing more than an investment in the oil price, which is near decade-lows at the moment. It’s certainly a popular conception that Norway is all about oil, but it’s not the whole story.

Why look at this now?

Following the severe impact of the coronavirus epidemic, the demand for oil is falling as cars stay at home, aeroplanes are grounded, and factories stay closed. The situation has affected the oil market negatively. Estimates vary, but 15-30 % of oil demand is likely to have disappeared during the Coronavirus lockdown. The implications for the oil price are clear. The current price has moved below the malaise of the financial crisis, as well as the oil downturn of 2014-15.

The fluctuations in the oil price the last 12 years / Source: Bloomberg, DNB Asset Management
FALLING OIL PRICE: The fluctuations in the oil price the last 12 years / Source: Bloomberg, DNB Asset Management

As production is still going strong, storage is quickly filling up. In the oil hubs of the US, storage capacity is acutely exhausted, sending local oil prices plummeting. The West Texas oil prices even turned NEGATIVE for a brief moment, as oil traders were getting PAID to receive oil, a phenomenon never seen before.

The WTI has fallen dramatically
DOWNTURN: The WTI has fallen dramatically. Source: Bloomberg, DNB Asset Management

There are many different sectors represented on the Norwegian stock exchange

An investment in Norwegian equities is not an investment in a single type of company. The stock exchange lists companies of various types, with various sensitivities to the oil price. Let’s look at a few distinct types.

The oil sector

The oil and gas sector are obviously tightly connected to the oil market, with the oil price as the most important driver. However, the sector only comprises 20% of the OSEBX index.

I have done a simple analysis taking the 3 months return of the 5 largest Norwegian oil stocks and plotted against 3 months change in the oil price, over the last 9 years.

Source: DNB Asset Management

As you can see from the chart above there is a very clear relationship between the two. On average, a 10 % change in the oil price, corresponds to a 7.4 % change in the oil stocks.

Export-oriented sectors

Several sectors produce goods and services not related to oil and export them abroad. They are generally not directly affected by changes in the oil price. However, seeing that the oil price usually correlates with the currency, and the currency is of paramount importance to exporters, the oil price is of much less, maybe even inverse, importance.

The causality can be seen: As oil price weakens, Norwegian currency weakens, which is favourable for Norwegian exporters selling goods in foreign currency.

There are other important effects here, such as the oil price often depending heavily on growth prospects for the international economy, which is also important for exporters, but the oil price in isolation should be of less or even inverse importance.

I have looked at 5 large companies selling a large part of their goods abroad, from sectors such as fish farming, fertilizers, metals and industry.

Source: DNB Asset Management

The graph in this chart shows a positive relationship, albeit quite small. A 10% change in the oil price on average matches up with a 1.3% change in export-oriented stocks.

Domestically oriented sectors

Several companies produce goods and services that are mainly sold domestically. They should generally be less affected by changes in the oil price and see smaller effects of changes in the currency.

However, as for other sectors, they are also influenced by growth prospects for the economy, which also influence the oil price. As such there probably is an indirect correlation.

Source: DNB Asset Management

Five large companies from sectors such as telecom, banks, insurance and food, all of which with a high degree of domestic sales, show a small but positive relationship to the oil price. When the oil price changes 10%, these companies on average return 2.0%

International comparison

We have seen that Norwegian companies exhibit some relationship with developments in the oil price.

However, the oil price correlates heavily with developments in the international economy. How large is the relationship between international stocks and the oil price, compared to Norway?

For the MSCI World Index, the picture looks as follows:

Source: DNB Asset Management

Comparing to the OSEBX Norwegian index:

Source: DNB Asset Management

The analysis shows that Norwegian equities have a slightly higher correlation with the oil price. A change of 10% in the oil price corresponds to a 3.0% change in Norwegian equities, compared to 2.3% for international counterparts.

Not surprising to see a small difference, as the oil and gas sector weighs 20% in the Norwegian equity universe and only 3.4% internationally.

Not like inseparable twins, but similarities

The analysis shows that Norwegian equities indeed have a relationship to the oil price, but so has international counterparts.

It also shows that oil sensitivity as expected is concentrated in the oil and gas sector and that the rest of Norwegian companies, 80% of the OSEBX index, is not particularly oil sensitive.

A 10% change in the oil price has over the period analysed (since 2011), on average corresponded to a change in stock prices with:

International equities (MSCI World)2,3%
Norwegian equities (OSEBX)3.0%
5 largest oil companies (OSEBX)7.4%
5 largest export companies (OSEBX)1.3%
5 largest domestic companies (OSEBX)2.0%

The oil price is not as important for the Norwegian stock market as one might think

There are several reasons why the oil price is not as important for Norwegian equities as one might think:

  • The oil sector is only 20 % of the weight in OSEBX, meaning 80% is less or even inversely correlated to the oil price.
  • The currency acts as a stabilizer, cushioning other sectors as oil price falls.
  • Norwegian listed companies have less to do with the Norwegian economy, and to a large degree sells goods and services in international markets, decoupled from oil.
  • The Norwegian public sector is large and strong, making the local economy less influenced by fluctuations in the oil price.

An investment in Norwegian equities is an investment in high quality, well-driven companies in a stable society and solid economy. The oil and gas sector is larger than internationally, but still, the majority of the investment is not particularly related to the oil price.

Disclaimer: Nothing contained on this website constitutes investment advice or other advice, nor is anything on this website a recommendation to invest in our Funds, any security, or any other instrument. The funds mentioned may not be available in the markets you represent. The information on this blog is posted solely based on sharing insight to make our readers capable of making their own investment decisions. Should you have any queries about the investment funds or markets referred to on this website, you should contact your financial adviser.

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