"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.

Since the establishment of the GPFG, Norges Bank has, in line with the requirements in the mandate, advised the Ministry of Finance on the GPFG's investment strategy. The Bank's advice has largely been based on how changes in the investment strategy can be expected to affect return and risk for the fund in isolation. The fund now accounts for a much larger share of the government's wealth than before, and is an integral part of fiscal policy via the fiscal rule. For that reason, in the strategy plan for Norges Bank Investment Management 2017-2019, the Executive Board states that in the period ahead, it will adopt a broader wealth perspective when advising the ministry.

The Bank's analysis

The Bank's analyses of the oil price risk in the government's wealth are based on the government's future oil and gas revenues, the government's direct holdings in Statoil and the GPFG. The investments in the GPFG and the stake in Statoil result in a total exposure to oil and gas equities for the government that is twice as large as would be the case in a broad global equity index. This exposure is increased several-fold when the government's future oil and gas revenues are also taken into account.

The analyses show that oil and gas stocks are significantly more exposed than other sectors to movements in oil prices. In periods of stable oil prices, the returns on oil and gas stocks have largely moved in tandem with the broad equity market. However, in periods of substantial and prolonged oil price changes, the difference in returns between oil and gas stocks and the broad equity market have been considerable. The return on oil and gas stocks has been significantly lower than in the broad equity market in periods of falling oil prices.

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. If the relationship between long-term returns in the broad equity market and oil and gas stocks persists, neither the expected return nor the market risk in the fund will be affected appreciably by whether or not the fund is invested in oil and gas stocks. Oil and gas equities currently account for around 6 percent of the GPFG's benchmark index or just over NOK 300 billion.