PORT OF SPAIN, Trinidad (Trinidad Express) - The Government will not resort to borrowing money if the budgeted price of oil falls below US$80, Finance Minister Larry Howai has said.
The minister was responding to e-mailed questions from the Express last week as crude oil prices continued a sudden plunge on global markets that has caused governments around the world to brace for potential budget shortfalls.
For instance, Venezuelas 2015 budget will be based on a target oil price of US$60 perpbarrel that countrys government announced on Friday night.
Oil has dropped more than 25 per cent since June on strong supply, signs of weak demand growth and indications that key oil producers, particularly Saudi Arabia, have a limited appetite to cut output to bolster prices.
United States November crude settled at US$82.75 on Friday.
Responding to how the oil price plunge could affect Trinidad and Tobagos budget, Howai stated oil and gas prices are important variables for our budget, but context is also important.
But what if oil slips below US$80, which is what the 2014-2015 budget is based on?
Howai said regarding measures to address a price below US$80, based on analysis, we do not see this as likely to be a prolonged situnot;ation and, in any event, unless the price of gas and related derivative commodities also show a significant decline, it is unlikely that we would have to do anything.
The 2014-2015 budget was also based on a gas price of US$2.75 per million British thermal units.
But we also consider the worst case and, in such a situation, the short answer is that we would not borrow to make up the shortfall, Howai stated.
We have already begun an exernot;cise to address expenditure and that process will be acceleranot;ted if prices do fall below US$80 for an extended period and if gas prices also follow suit.
Howai acknowledged we continue to follow closely the price of oil but note that any response by us will depend on two factorsfirstly, whether the reduction in price is for an extended period and, secondly, what is happening with gas prices.
Gas prices make a bigger contribution to budgeted revenues than oil and have been a bit better than budgeted and are so far partially offsetting the effects of lower oil prices, he told the Express.
We established US$80 as the benchmark for oil for a number of reasons, he said, giving two reasons in his analysis.
The first is that Saudi Arabia, the main swing producer in OPEC (Organisation of Petroleum Exporting Countries), needs oil at US$92 per barrel to balance their budget. Although, it should be noted that given their foreign exchange reserves of over US$750 billion they have a lot of room to sustain prices below $92.
In addition most shale oil producers require prices at $80 to $85 per barrel to break even. Prices much below this level results in curtailment of investment and output. This would result in prices moving back up in the short term, he said.
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