Finance Minister Jerome Kennedy is sticking by the Newfoundland and Labrador government's budget assumptions about the price of oil, even though the government was wildly off a year ago.

The government is assuming that oil produced offshore will trade at US$105 per barrel as an average through the year, well below theĀ target of US$124 set last year. Brent crude, the type of oil most closely followed in Newfoundland and Labrador, never once hit that price during the last 12 months.

"We're projecting based on a very volatile resource in a very volatile economy, where it's resource-based," Kennedy told reporters Tuesday.

A key ingredient for the coming year is increased production, rising to about 85.2 million barrels in the 2013-14 fiscal year. While that's higher than last year, production is down compared to two years ago, when almost 96 million barrels were extracted.

Kennedy said the government has relied on the Canada-Newfoundland and Labrador Offshore Petroleum Board for its estimates of how much oil that operators expect to extract. Kennedy acknowledged that government has not been satisfied with swings in these estimates, as so much of the government's revenues rely on the commodity.

"The production is something where we're trying to come up with a better process," he said.

Meanwhile, Kennedy said the government consulted widely before setting its price, and added that he personally would have been comfortable setting the price as low as $100 per barrel.

Kennedy rejected pessimistic projections of oil pricing, which some pundits have recently said could drop to as low $50.

"I could go on for a half hour about why oil will not go down to $50," said Kennedy, who then used several minutes during a media briefing on Tuesday to explain his views on commodity pricing, including Saudi price demands and international growth, especially in China.

"The Americans [are moving] towards self-sufficiency, however, China at five per cent growth will still outpace the Americans in terms of the need for oil," said Kennedy. "Oil is not [going to be] replaced in the next number of years."