helpless ... hopeless
It was always this way. But now, more than ever, the government and people of this 50-year-old nation realise how our economic fortunes are shaped by forces and events far removed from us.
And while there is much we can do to help ourselves—like being creative, disciplined and more productive—truth be told, we are powerless in determining the values of the commodities that impact most on the wealth of our nation.
Last week, the price of WTI crude slipped to below US$80 a barrel. When Finance Minister Winston Dookeran delivered his budget presentation last September, he premised revenues from oil at $75 a barrel. At that time, the spot price of WTI crude was around $90 a barrel, and although it declined briefly to $75 in early October, thereafter it remained robust, above $100 since December. From late May, however, the price went into decline, and by last week it hovered ominously close to the budgeted price of $75.
Why is this decline in the price of oil worrisome? The energy sector (oil, gas, petrochemicals) generates about 50 per cent of government's revenues. It accounts for around 80 per cent of the country's export earnings, and close to 40 per cent of taxation revenues. Such is the significance of our revenues from energy products, it is said that a one dollar movement in oil price translates into TT$100 million a year in gains or losses.
Much of our crude oil is sold on a contractual basis at fixed prices, but these are invariably linked with market prices—meaning they would decline as prices fall. We need note too that State-owned Petrotrin refines all the crude it produces at its Pointe-a-Pierre refinery. Petrotrin also imports the bulk of the crude it processes (around 100,000 barrels a day), hence it benefits from low prices.
As oil prices wobble, not for the first time in recent history, experts are weighing in on why this is happening and how low prices could go. The main reason for much of the turmoil in oil (and other key commodities) lies in Europe. EU countries are huge players in manufacturing, and a big market for manufactured goods from emerging giants like China, India and Brazil. Europe also buys much of its natural gas via pipelines from Russia.
The eurozone, as EU countries are referred to, is in bad shape. Most people know that Greece, sits perilously close to bankruptcy notwithstanding the recent election of a new government. Indeed, the elections only showed how fractured the country is, and why it may not be able to implement the severe austerity measures the IMF and EU are demanding before they dole out any further loans to Greece.
The crises in Greece and Spain (the latter buys our LNG) have had a negative impact on the rest of Europe. The euro has declined against the US dollar and other major currencies. Germany, long the economic "strongman" in Europe, has seen manufacturing at its weakest in three years. Large consumer goods producers like Procter & Gamble have lowered their revenue forecasts. As a fallout from what's happening in Europe, China's manufacturing output has declined. As if all these negative indicators weren't enough, last Thursday, ratings agency Moody's downgraded 15 large international banks.
Meanwhile OPEC, which dictates global oil production, hence oil prices, met in Vienna two weeks ago and rejected a call by several members to lower its daily crude production of 30 million barrels a day in a bid to stabilise prices. A Daily Telegraph report noted that the price of Brent crude has slipped by 25 per cent since March. It warns of a global recession as happened in 2008, in which scenario oil prices could crash to below US$50 a barrel.
All these external factors impact on our revenues, on our economic well-being. They are beyond our control. And they can leave us feeling helpless as well as hopeless.