The Petroleum Fund's foreign exchange requirements are partly met by the state's direct financial interest in petroleum activities (SDFI) and partly by Norges Bank's purchases in the market.

The Ministry of Finance determines the size of the monthly allocations to the Petroleum Fund. Norges Bank's purchases of foreign exchange are equal to the difference between the allocations and SDFI's estimated foreign exchange revenues. Adjustments are made for any revisions of estimates for the previous month. As a result, the daily purchases may vary from one month to the next. The daily foreign exchange purchases are determined for a period of one month at a time and are announced on the last business day of the preceding month.

Norges Bank will not purchase foreign exchange in January 2005. This is partly because the November allocation to the Petroleum Fund was substantially reduced. In addition, some of the SDFI's foreign exchange income in December was transferred to the buffer portfolio to minimise the Government's transaction costs. Norges Bank intends to reduce the size of the buffer portfolio during the first quarter of 2005. A substantial part of the reduction will take place in January. A more detailed description of the method employed is provided in a box in Inflation Report 3/04.