Oct 2014 Financial News

Oil price drops below US$80

Oct 28, 2014

The price of oil yesterday slipped below the US$80 a barrel price on which T&T’s national budget is based. The drop in price came after Goldman Sachs, a leading global investment banking, securities and investment management firm, slashed its forecast for prices, predicting that West Texas Intermediate (WTI) crude—the price of T&T’s oil—will spend the better part of 2015 at US$75 a barrel. In early trading on the New York Mercantile Exchange yesterday, the price of WTI slid US$1.20, or 1.5 per cent, to US$79.79 a barrel. Brent crude on London’s ICE Futures exchange dropped US$1.26, or 1.5 per cent, to US$84.88 a barrel. 

WTI prices recovered slightly, ending the day at US$80.95 in New York trading, while Brent crude, which is used by many US refineries, was at US$84.93 in London. Since June, oil prices have dropped steadily from a high of US$107 a barrel. Goldman Sachs was the latest Wall Street bank to lower its forecast for oil prices, saying that Opec was unlikely to cut exports to try and push prices back up. The bank’s analysts are predicting that WTI crude will average US$75 a barrel for the first quarter and second half of 2015, down nearly 17 per cent from US$90 a barrel, previously. They cut their Brent forecast by 15 per cent, to $85 a barrel, from $100 a barrel, previously. The 2016 and long-term forecasts for those oil prices are US$80 a barrel WTI and $90 a barrel for Brent.
In an immediate response, Prime Minister Kamla Persad-Bissessar yesterday expressed confidence that T&T’s economy will not be adversely affected by the falling oil prices.

Speaking at a joint news conference with Tobago House of Assembly (THA) Chief Secretary Orville London at her St Clair Office, Persad-Bissessar said Finance Minister Larry Howai had recently reported to the Cabinet that the shortfall from reduced oil prices will be made up in gas sales. She said Howai indicated that there was no need “to go into further deficit or to go into further borrowings.”  Howai is expected to give a further update on the situation to the Cabinet on Thursday. “We are very optimistic that we can weather it, we can weather the storm. Should things change we will come back to the public at large (but) at this point we have been given the assurance that we can survive,” Persad-Bissessar said.

Howai said last week that an exercise is already in progress to address expenditure and it will be accelerated if the price of oil slips below the US$80 on which the 2014-2015 budget is based. He also expressed the view that lower oil prices will not be a “prolonged situation”, suggesting that there will not be need for concern unless “the price of gas and related derivative commodities also show a significant decline.” The minister told the T&T Guardian that the ministry will closely monitor the price of oil but Government’s response will depend on whether the reduction in oil price is prolonged and there is a change in gas prices. Howai explained that gas prices make a bigger contribution to T&T’s budgeted revenues than oil and that has been “so far partially offsetting the effects of lower oil prices.”

—With additional reporting by Richard Lord

Source:
Suzanne Sheppard
Trinidad Guardian
Tuesday October 28, 2014

http://www.guardian.co.tt/business/2014-10-28/oil-price-drops-below-us80