Heritage Petroleum in Santa Flora.

“Thank God.”

This was the declaration made by Finance Minister Colm Imbert following a recovery of oil prices above the US$30 mark this week.

However, despite this expression of relief Imbert said it is still too early to know whether T&T’s economic fortunes will improve as a result.

The national budget was originally based on an oil price of US$60.

However in the end of last month the West Texas Intermediate oil price fell to an unprecedented price of US $0.01 per barrel.

Brent oil, which is closer in price to our local crude than WTI, dropped to US $20.

Based on this drastic fall in the oil price Imbert told the Parliament on April 27 that our latest revenue projections are based on conservative prices of US$25 per barrel for oil for the rest of the year and US$1.80 per mmbtu for natural gas.

The budget’s fiscal deficit was originally estimated at $5.3 billion and was expected to expand to $15.5 billion, $10.2 billion higher than envisaged.

“In calculating this revised deficit, we have taken note of the fact that the collapse of the price of WTI oil to US 1 cent per barrel last week is having an adverse effect on other oil prices.

“For example, Brent oil, which is closer in price to our local crude than WTI, has dropped to $20. Such low prices were previously undreamt of.”

Imbert said a loss of revenue in fiscal 2020 of was now estimated at $9.2 billion, and in addition to that another $1 billion in extraordinary expenditure needed to be added.

Within that $9.2 billion revenue loss, we estimate a loss of $3.8 billion in taxes on incomes and profits, and losses of $750 million in business levy and green fund levy, $600 million in taxes on goods and services and international trade, $2.5 billion loss in royalties and production sharing and $1.2 billion loss in profits from state enterprises, among other areas,” Imbert said.

But what does the rise in oil prices mean for us now?

Well, according to Imbert it’s too soon to tell.

“You can’t look at oil prices or natural gases prices based on a week or even a month, you have to look at it over the medium to long term so yes if you look at the price of oil it’s over US$30 but who knows what is going to happen next month because it’s all based on demand and supply,” Imbert said.

“The reason why the price of oil crashed is because global demand for oil crashed now economies are opening and so on demand is gone back up and production levels have gone down so the price is going back up,” he said.

Imbert said he was cautiously optimistic about the future.

“I will say in terms of the oil price even though it is over US$30 now it is far too early to make any sort of scientific assessment as to what effect this would have on our deficit for 2020,” Imbert said.

“We are continuing to work with the $30 figure, in terms of natural gas prices they are still in the $1.80 range which is what we have used for our projection so it’s too early to tell,” he said.

To help address the financial difficulties facing T&T the government took steps to allow for emergency drawdowns from the Heritage and Stabilisation Fund not exceeding US$1.5 billion or TT$10 billion in any given year, for budgetary support in exceptional circumstances, such as the current pandemic.

The world has not seen peak oil demand as yet, the head of the International Energy Agency (IEA) Fatih Birol has reportedly said.

Birol said is expected that sooner or later, oil consumption would return to the pre-crisis levels and rise above that.

“In the absence of strong government policies, a sustained economic recovery and low oil prices are likely to take global oil demand back to where it was, and beyond,” Birol told Bloomberg News on Monday.

Birol’s assessment of oil demand trends for after the COVID-19 pandemic and recession could sound reassuring to major oil-producing nations that depend on oil revenues for their budgets, as well as to oil majors, some of which have expressed uncertainty whether oil demand will ever return to the 2019 levels.

The pandemic adds not only a layer of uncertainty in the oil industry in the short term, but it also creates another challenge for the coming years, BP’s chief executive Bernard Looney told the Financial Times in an interview published earlier this month.

“It’s not going to make oil more in demand. It’s gotten more likely (oil will) be less in demand,” Looney told FT.

BP’s top executive joins other CEOs of major oil corporations who have recently expressed views that it’s not guaranteed that global oil demand will return to its “normal” pre-virus levels of around 100 million barrels per day (bpd).