OIL REVENUES: DON'T WORRY. BE HAPPY!

Bobby McFerrin’s light-hearted lyric “Don’t Worry, Be Happy” seems perfectly suited to Dr. Wade Locke’s analysis, as he explained it to James McLeod of the Telegram last week, on the future of oil.  Dr. Locke is an Economist and Professor at Memorial University.

Indeed, why would we worry when the ass is coming out of the Provincial Budget!

The slide in the world price of Brent Crude, closing at US $86.16 per barrel on Friday October 17^th, is a significant event and not because people will save money at the gas pumps. 

Since oil’s decline began just a few weeks ago, a host of oil producing nations including Saudi Arabia, Iraq, Venezuela, and Russia among others, whose budgets rely on $100 plus oil, have expressed concern that they will feel the sting of lower revenues. While none could forecast the exact day or week that a major correction on the markets might occur, all knew it was coming.

The fact that the U.S. will become energy self-sufficient by 2030 or earlier is old news.  Unlike the Saudis, few oil producing nations have maintained a rainy day fund.

Newfoundland and Labrador is just as reliant, on a relative basis, as many of the countries mentioned.  Oil directly generates 33% of the Province’s budgetary revenues.  The figure does not reflect proceeds from corporate, personal taxes and HST associated with offshore related jobs, construction and services. In fact, oil’s impact on the Treasury may represent as much as 50% of revenue or more when the labour pool doing the round trip to Fort McMurray is assessed.