Premier Kathy Dunderdale is warning Newfoundland and Labrador residents to get ready for tightened spending as her government sets lower expectations on the price of oil.

Newfoundland and Labrador has been expecting to run a deficit of about $258 million this year, even though it pegged Brent crude oil to trade at a record high expectation of $124 per barrel. Brent has consistently sold for less since budget day.

Speaking to reporters at the annual Progressive Conservative convention in Gander, Dunderdale said both the expectation for oil prices and the government's overall spending will have to come down.

"We've seriously got to think about how we're going to find our way forward in this new reality of oil about $100, and predicted to stay there for a long time."

On Monday morning Brent crude was trading in the range of $114 a barrel.

Dunderdale has been issuing warnings about government spending for months, particularly after leading the Tories to a third consecutive majority in the October 2011 general election.

With budget planning now underway, Dunderdale said the government is looking at a sustainable way of dealing with oil revenues, which are now the largest driver of the provincial economy.

"How do we give a high quality of service to the people of the province but how do we ratchet back that spending, so that in 10 years time we're not billions and billions and billions of dollars in debt again?"

Dunderdale said that the government will also be concentrating on debt reduction.