Dark cloud cover is a term used with candlestick charts, like ‘bearish engulfing’ in bar charts, and nothing to do with Ichimoku cloud charts (which I use a lot). The term came to mind because this month the Norwegian krone reached its weakest ever level against the euro, at 10.31. Since January it has depreciated by 6 per cent against the US dollar, just one step behind its Swedish counterpart, which is Europe’s worst-performing currency, losing 8 per cent. These currencies are closely correlated, with a mean regression since 1982 at 1.15 Swedish krona per Nokkie; at 1.05 today, it’s 1 standard deviation below here.
Hard to believe that an oil and gas-rich nation, with a small population (5.3m) and the biggest sovereign wealth fund in the world is struggling to keep up with the eurozone. It wasn’t always thus. Because of the inhospitable terrain, they were traditionally considered the poor rural cousins of Scandinavia, for centuries dwarfed by Denmark and Sweden, bellicose global powers, while Finland didn’t exist until 1919.
Climate change targets, which some suggest should be met in a decade, will affect all nations, oil producers on the bottom line. Ironically, the day before BP announced third-quarter 2019 net profits tumbled by 41 per cent, S&P Global Ratings published a report saying European gas producers were well placed to withstand the downturn in prices for a year; longer than that, and strategies would have to adjust to preserve their resilience. A welcome boost to an industry where wholesale prices this September were at their lowest in a decade.
Looking at my charts the outlook for both the krone and crude oil is not bright. There’s an old stock market saying that what’s cheap today, might yet be relegated to the bargain basement. This, I feel, is the issue for the former, while the latter has struggled with subdued demand, thanks in part to increasingly cheap-to-produce renewables.
New York crude has spent almost five years meandering aimlessly between $40 and $70 per barrel, almost half the $80 to $115 range it held in the five years before that. I see little reason for the status quo to change.
Against this background, it may come as a surprise that the share price of Equinor (Nor:EQNR) has held up so well – the resilience S&P noted, though warning that it and Gazprom were, of the global majors, the most vulnerable to even lower prices. Technically, we’d expect the shares to hold above 150 kroner for the foreseeable future, rallying towards 225 in the coming year.
Oslo’s main stock index (OBX) of the most liquid 25 companies has an even more impressive chart. Oil and gas heavy, with seafood and other food producers and processors thrown in for good measure, a salient feature is that it contains just one bank, DNB, and one eponymous airline. First calculated in the mid-1990s it quadrupled over the next decade, only to suffer like all the others in the great financial crisis of 2008 when it lost half its value. It has, subsequently, doubled within three years, and doubled again from there over the following eight yearss. Quite some recovery. As is the case with the UK’s FTSE 100, a weaker currency can buoy share prices, and shares themselves seen as a shield against devaluation.
