Home' Trinidad and Tobago Guardian : December 28th 2014 Contents SBG4 2014 YEAR IN REVIEW
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt DECEMBER 28 • 2014
The year 2014 belonged to
oil. Whether it was cau-
tious 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 head-
lines, particularly in the closing weeks of
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, pre-
dicting 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 sig-
nificant wiggle room should prices fall, and
it would be in line with other predictions
made over the course of the People s Part-
nership 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
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
By this time, critics began sounding warning
bells. However, the Finance Minister main-
tained his position that the US$80 a barrel
price was a "conservative" one and that gov-
ernment 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 min-
ister 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
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".
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 (Organ-
isation 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 over-
supply of oil. With the increase in the extrac-
tion 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
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 con-
sequences for Saudi Arabia s OPEC partners,
Nigeria, Venezuela and Iran, who all need the
oil price to be around US$100 to balance their
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 pro-
grammes 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
He also hinted at possible adjustments to
the fuel subsidy to manage the expected short-
fall 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
"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 con-
troversial 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.
THE BIG OIL TURNAROUND
Saudis refuse to cut back, sending other exporters reeling
Dr Ronald Ramkissoon...
"If government then spends less on goods and serv-
ices 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 govern-
ment is buying less construction materials, then the pri-
vate 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."
What economists had to say about oil price decline
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,
"We have to now plan differently and think differently. In my humble view, the gov-
ernment 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 for-
eign 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 ex-
tent of government borrowing during this period in the
run up to an election."
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