Falling oil prices expected to erode federal coffers
Oil prices are continuing to tumble and erode the federal government’s bottom line, but not Finance Minister Joe Oliver’s confidence that the Conservatives can fulfil political promises to balance the books in 2015 and implement billions of dollars in family tax breaks.
A tanking oil price and its effects on an economy heavily dependent on energy exports were expected to be key issues discussed by federal and provincial finance ministers at a meeting Monday in Ottawa.
The slumping crude prices are eroding Canada’s nominal gross domestic product — which is the best indicator of the government’s tax base — and are projected to deliver a multibillion- dollar annual hit to federal revenues over the next couple of years.
Oliver said crashing crude prices are making federal budgeting a bit tricky and will adversely affect corporate taxes from the oil and gas sector, which helps drive the national economy.
“They ( oil prices) are quite volatile and we don’t know where they’re going to settle. However, we’re comfortable that we can achieve a balanced budget next year, taking into account the commitments we’ve already made,” Oliver said.
Crude prices have fallen below $ 60 a barrel for the first time since July 2009 and have plummeted about 45 per cent since June.
The federal government, in its November economic update, projected North American benchmark West Texas Intermediate oil to average $ 81 US over the next few years. Oil prices have now plunged below $ 58 US.
OPEC’s most influential producers are willing to allow oil prices to fall to $ 40 per barrel before discussing whether the cartel should hold an emergency meeting to discuss cutting output.
Suhail al- Mazrouei, energy minister of the United Arab Emirates and a high- profile delegate of the group, said: “We are not going to change our minds because the prices went to $ 60, or to $ 40.” The comments, made over the weekend to Bloomberg News at a conference in Dubai, could add to further downward pressure on prices.
The Organization of Petroleum Exporting Countries, which is made up of 12 members, mainly drawn from the Middle East, agreed at its most recent meeting in late November to keep its production quota unchanged at 30 million barrels per day, a move that has led to a rout on global oil markets. Many analysts believe that OPEC has effectively launched a price war aimed at producers outside the group, such as the United States and Russia.
The decline in prices also coincides with cooling demand for crude and a global oversupply, which is estimated to be in the region of 2 million barrels per day. Last week, the world’s three leading energy bodies cut forecasts for demand growth into 2015.
According to the Paris- based International Energy Agency, growth in world demand for oil will next year again fall below the critical figure of 1 million barrels per day. The agency has also warned of a 300- million barrel increase that has built up in the storage tanks across Europe and North America.
U. S. estimates for demand are even more depressed, with the U. S. Department of Energy last week reducing its forecast demand growth to just 880,000 bpd.
Natural Resources Minister Greg Rickford will meet the U. S. and Mexican energy minister Monday in Washington to discuss what to do about the falling price of oil, the Keystone XL pipeline, and Mexico’s major oil and gas shakeup. Already, there has been buzz around the idea of a North American- style energy cartel to counter OPEC, although that has not be explicitly raised by any of the players who refer instead to a “strategic dialogue on energy cooperation.”
“This is a massive, fully integrated market in most respects, certainly with gas and electricity,” Rickford told CTV’s Question Period Sunday.” Secretary ( Ernest) Moniz and I have some key things to build on and enjoin our Mexican counterparts for that North American energy market integration that I think we all seek to strive for as matter of security and for the economic benefits.”
The Mexican government is loosening its monopoly over the energy sector, and opening it to exploration and development by private industry. It kicked- off bidding on exploration in 14 locations on the Gulf of Mexico last week.