Oil at $50 — could N.L. be richer than we think?
A poor oil market got Newfoundland and Labrador into its current mess — the cuts, the levy, the $1.9-billion deficit —and now, perhaps, the oil market is helping dig it out.
Brent crude, the province's standard, has been on a bit of a run since bottoming out in January. On Thursday, Brent traded at about US $50 a barrel for the the first time since November.
That's good news for the provincial coffers, not to mention the Liberal government, which is looking for any way to make up a massive revenue gap.
"The price of oil goes up by a dollar? We pick up $23 million in royalties," said Finance Minister Cathy Bennett earlier in May on a special edition of Here & Now.
On a run
In April's budget, the government forecasted an average oil price of US $40 throughout the 2016-2017 fiscal year.
It's not the $148 per barrel that Dwight Ball says we would need to close the deficit this year, but a $50 barrel would bring about $230 million extra in revenues — if Bennett's math is right.
Another factor, though, is the exchange rate between the Canadian dollar and U.S. currency. So far, oil prices combined with the exchange rate have not yet reached the target that the government has set.
That $230 million would be the equivalent of about 18 full-day kindergarten programs or two points on the harmonized sales tax.
In fact, a $230-million bump would be almost just as much as the province saved through its line-by-line spending review in the April budget.
But we only get a full bonus if Brent stays elevated throughout the entire fiscal year, which is still only in its second month.
The last two years on the oil market have shown the market is anything but stable.
ABOUT THE AUTHOR
