A few days into October, these events have propped up the energy-intensive Norwegian stock market, with heavy-weight Equinor rising by ten per cent. This is not the least surprising, as many investors waste no time positioning themselves for changes in expected energy price trajectories.
Where to position yourself? I have absolutely no idea. And I genuinely believe nobody else does. Not Benjamin Netanyahu. Not Antony Blinken. And not Masoud Pezeshkian (that’s Iran’s president, in case you’d forgotten). For an investor, such events should be put in a drawer marked “unforecastables”. You shouldn’t bank on luck. We don’t.
Let’s instead take the long view. And do notice the wide price range. During the past 35 years, the price of Brent crude has gone below 10 dollars and above 146 dollars. It is presently just above 75 dollars. That’s almost five times the price level in 1990, when incidentally Norway passed the Provisions on the management of the Government Pension Fund (later revised).
At first glance, then, oil has gotten quite a bit more expensive over the past three plus decades. A second look reveals that it is in fact closer to the cheap end of the range. At present levels, the real price – deflated by the June 1990 price of money – is just above 30 dollars. Over the course of the past 34 years, oil has not even doubled in price.
While wars are unforecastable, exploration and depletion rates belong in a different drawer. According to a previous estimate from the International Energy Agency, oil production is projected to decline at a rate of 8% without new resources and projects. The latest estimate from ExxonMobil, while of course not unbiased, puts the depletion rate at 15%. Fast forward a few years and that sample space makes a world of difference.
Again, I have absolutely no idea who will be right – if any of them. But at least these figures are quantities that can be forecast. Acts of war are not.
So, while the atrocities in the Middle East may make you lose sleep as a human being, I recommend you take a different stance as a long-term investor facing a possible war: Keep calm and carry on investing!
Finn Øystein Bergh
Chief Economist & Strategist
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