The year 2014 belonged to oil. Whether it was cautious optimism about steadily rising prices from December 2013 through to June 2014 or near panic as OPEC announced its refusal to cut production sending prices into a tail spin towards the end of the year, news of oil, or more specifically, oil prices dominated headlines, particularly in the closing weeks of December.
At a post-budget forum hosted by the Couva Point Lisas Chamber in 2013, the Finance Minister Larry Howai was reported in the Guardian of September 13 as saying he was confident oil prices would remain stable, predicting a long term price of $US100.
Then, oil averaged US$110 a barrel and Howai's budget, pegged on a US$80 oil price, seemed a safe move, giving government significant wiggle room should prices fall, and it would be in line with other predictions made over the course of the People's Partnership's term in office. Oil prices were pegged at US$80 in 2013, US$75 in 2012, US$75 in 2011 and US$65 in 2010.
Towards the end of 2013, oil prices were buoyed by conflict in Syria and then pushed upward further in the early months of 2014 as a dispute waged between Russia, one of the world's largest net exporters of oil and the Ukraine.Oil prices would hit their peak for 2014 at $115 per barrel in June. After this, prices would begin to gradually slide, to an average of US$107 in July, to US$102 in August and US$96 in September when Budget 2015 was read.
By this time, critics began sounding warning bells. However, the Finance Minister maintained his position that the US$80 a barrel price was a "conservative" one and that government was continuing to monitor the world oil price situation.In October, oil dipped below US$80. Responding to the event, Prime Minister, Kamla Persad-Bissessar said that she was "optimistic that we could weather the storm."
Further, she indicated that the finance minister had said the shortfall in oil would be made up by gas prices. Prior to her statement, according to a Guardian story on October 28, Minister Howai said that an exercise was underway to address expenditure and that it would be accelerated should the oil price fall below US$80.Howai said the decreased price need not be a "prolonged situation", unless "the price of gas and other derivative commodities also show a significant decline".
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In November, Kevin Ramnarine, Energy Minister, said he was unfazed by low oil prices in the same week his ministry distributed licenses for the exploration of blocks in Rio Clario, Ortoire and Moruga.
However, the bottom would drop out on Thursday, November 27, when OPEC (Organisation of Petroleum Countries) decided in meeting that they would maintain its official quota at 30 million barrels a day in a global economy where there was already an oversupply of oil. With the increase in the extraction of shale oil, US producers were almost averaging Saudi daily output.
According to a November 27 New York Times analysis of the situation: "The main new source of supply is oil extracted from shale in the United States, which is expected to add about one million barrels a day of oil production this year and an additional one million barrels a day in 2015."
"OPEC seems at a loss about how to cope with this new source of competition and is also struggling to influence other big producers outside the organisation like Russia and Brazil. Unable to come up with a strategy for handling these new developments, the cartel has decided not to intervene, evidently hoping that low prices will eventually curb production in the United States."
Some commentators have said the situation is not all bad as the lowered oil prices may stimulate GDP growth in areas such as Western Europe and Japan, which have been struggling. However, the lowered oil price also has consequences for Saudi Arabia's OPEC partners, Nigeria, Venezuela and Iran, who all need the oil price to be around US$100 to balance their national budgets.
The situation has precipitated the collapse of the Russian ruble and can worsen pockets of social unrest in Venezuela, which has used its oil wealth to support a number of programmes and closer to home, could signal the curtailment, if not the end of PetroCaribe.At home, Howai responded on November 28 with what he said were the three likely scenarios the government was preparing for. Of these three, he said government expected oil to settle at US$65 and natural gas at $2.75 mmBtu.
He also hinted at possible adjustments to the fuel subsidy to manage the expected shortfall in revenue, but said Government was unlikely to borrow to meet the shortfall.He then called on government ministries to review their budgets for possible cuts and assured the nation that there were sufficient reserves and that the country's financial buffers remained strong.
"The country's overall fiscal position and revenue flows also remain healthy," said the finance minister. He also said that it was unlikely that programmes such as the controversial baby grant would be cut–a point reiterated by the Prime Minister during her gift-distribution drive on December 14, when she said essential programmes in the social and health sector would not be cut.
She added: "Should the oil prices continue to fall it will be required to have a further look at the budgeted figures and do some revisions as may be necessary."It seems that this adjustment may be in the wind as in an interview with Guardian Chief Editor Anthony Wilson last Sunday, Howai suggested that there may be "deeper cuts" in spending, including hiring delays and the purchase of goods and services.
What economists had to say about oil price decline
Dr Ronald Ramkissoon...
"If government then spends less on goods and services and employment or wage increases for example, then there is less flow of income and business to those who depend on the government for business. if government is buying less construction materials, then the private business will have to consider reducing the number of its employees...If the inflow of foreign exchange slows and the demand remains strong at the existing price, then you either have to allow your reserves to be depleted or you are going to have to adjust the price of foreign exchange...We are not there yet."
Dr Roger Hosein...
"The decline in oil prices would not lead to dramatic changes as it is an election year and the government would strive to preserve the transfers and subsidy spending which is one of the main conduits through which the economic rents are passed onto to the man on the street. I think the shale oil/gas trends in the USA and soon other parts of the world is the dawn of a new normal for petroleum-producing economies, including T&T.
"We have to now plan differently and think differently. In my humble view, the government of tomorrow should be the government that can present the best practical and executable plan to diversify the non -il sector, especially the subset that earns foreign exchange. I think the electorate should now pressure all contesting parties to make very clear, this arm of their plan for the economy."
Dr Lester Henry...
"What we need to do is to pose the question to the Finance Minister and ask him: what is the quantum of borrowing that has been taking place. Because they can borrow very quietly without the public knowing and it shows up six months later.
"We need to get some kind of transparency to the extent of government borrowing during this period in the run up to an election."