A government-appointed commission recommended against a proposal by Norway's USD 1 trillion sovereign wealth fund to dump more than USD 40 billion in oil and gas stocks.

"Divestment of the energy stocks in the Government Pension Fund Global is not an effective insurance against a permanent decline in oil prices," said Commission chair Oystein Thogersen.

"The energy stocks only contribute marginally to Norway's oil price risk."

The government will now make its own assessment before the matter is considered by parliament. The report, together with the advice from the fund and public consultation, "constitute a solid foundation for decision-making," Finance Minister Siv Jensen said in a statement.

The world's biggest wealth fund shocked global markets last year when it proposed cutting oil and gas stocks from its benchmark equity index. Since then, the opposition in the Norwegian parliament has signaled it may back the plan, while the minority Conservative-led government has shied away from giving a clear signal.

In its proposal in November, the fund argued that Norway as a whole was over-exposed to oil price volatility as both western Europe's largest crude exporter and an investor in the industry. Paring oil and gas stocks would make the country less vulnerable to a "permanent fall" in oil prices, it said.

By the end of the second quarter, the Norwegian wealth fund held 6.2 percent of its equity portfolio in oil and gas companies, or USD41 billion. The oil and gas sector was the best performing in the quarter, returning 13 percent.

The sale of oil stocks would provide little insurance against lower oil revenue in the future while at the same time challenge the fund's investment strategy, the commission said.

"This investment strategy is simple, well founded and has served the fund well," the report said.

"If energy stocks are excluded from the fund, the composition of the investments will differ from market weights, and the fund will be expected to either achieve lower return or higher risk."

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