Oil prices bubble closer to budget benchmark
Brent crude now near US$117, just below N.L. government projection
The price of Brent crude swelled to US$117 a barrel on Friday, bringing it within striking distance of provincial budget forecasts as the mid-point of the fiscal year approaches.
The recent rebound in prices may not be good news for consumers paying more at the pumps, but it is a welcome development for the Newfoundland and Labrador government, which is highly dependent on petro-bucks.
Brent crude — a close, but not exact, reference point for local product — averaged a shade over US$110 a barrel between the beginning of the fiscal year in April and the end of August.
That’s according to statistics kept by the U.S. Energy Information Administration.
Over the first two weeks of September, the price drifted even higher.
The Newfoundland and Labrador government budgeted for oil to average more than US$124.
Lower-than-expected prices result in lower-than-expected royalties and related revenues.
This summer’s swoon in crude led Premier Kathy Dunderdale to order cost-cutting measures, including a reduction in travel and opting not to fill some vacant positions.
Dunderdale said in July that every $1 drop in the price of oil below government estimates results in nearly $20 million less being funnelled into the provincial treasury.
The Newfoundland and Labrador government was initially forecasting a deficit in the range of $258 million this year.
The premier warned this summer that number could go as high as $600 million or $700 million.
The actual price per barrel is not the only factor at play in determining how much cash the province gets from the offshore.
Production levels, the strength of the loonie, and various royalty arrangements for different projects also play a role.