The unparalleled coverage of the oil and gas sector for the past weeks gives new impetus to review our economic outlook and forward guidance on economic strategies worldwide.
“We are not going to change our minds because the prices went to $60 or to $40, OPEC will stand by its decision not to cut output even if oil prices fall as low as $40 a barrel and will wait at least three months before considering an emergency meeting,” the United Arab Emirates energy minister Suhail Al-Mazrouei said in Dubai on Sunday.
The Paris-based International Energy Agency is reporting the global glut of oil will persist next year, putting further pressure on prices and, in the case of Russia, reduce exports and depress their demand.
Wall Street is already betting that Russia and Venezuela are getting closer to defaulting on their debt. This stems from the fact that the Russian government gets half of its revenue from oil and gas exports and Venezuela oil makes up 96% of the country’s export earnings, which is already in deep debt and has been burning through its foreign currency reserves.
Late on Tuesday, the Central Bank of Russia raised interest rates from 10.5% to 17%. However, that could not stop the ruble’s decline to a new low against the dollar. At one point on Tuesday, a dollar could buy 79 rubles compared to 33 in January. Later Tuesday, the currency stabilized closer to 68 rubles to the dollar. Of late, new measures include buying gold bars with a declining ruble in an attempt to stem the ruble’s collapse and shore up international reserve assets hovering around $420.5 billion.
The Institute of International Finance is reporting that, with every dollar that the price of oil declines, the Venezuelan government loses $800 million in export receipts. The government has been selling assets and borrowing from China, but the continued decline in oil prices could force a “massive devaluation.”
In both scenarios these economies rely heavily on energy. The resulting downward price pressure is raising the risk of unrest and social instability and, if finances deteriorate, is expected to cause worsening financial conditions and the inability to pay back debt. This would likely force a warning downgrade by credit rating agencies.
Saint Lucia is heavily reliant on Venezuela’s goodwill and the PetroCaribe alliance and, as such, you can understand why this is causing much discomfort on many fronts. In an attempt to appease the public, prime minister and minister for finance Kenny Anthony has announced that at the next price adjustment due on Monday, January 12, 2015, consumers can look forward to a reduction in the price of fuel.
“I would expect on the last three months up until January, because of the reduction of oil on the world market you are going to see a significant reduction on the domestic market,” ~ Kenny Anthony.
Clearly, absent being asleep on another planet, oil prices have already fallen by more than 40 percent in six months, with little sign that demand will increase or production will ease.
But as I wrote in my last article The St Lucia Labour Party is deluded… brace for drawbacks, to the dissatisfaction of expected detractors, “Conveniently, while in purgatory, Kenny Anthony and the SLP made an issue of high oil prices and the retail price of petroleum products on the island, and referenced the term ‘extortion’. Today, world market prices are the lowest in five years and the SLP is in government, yet the retail prices for petroleum products in Saint Lucia remain unexplained”… to which I still ask: “Is this extortion, hypocrisy or both?”
To give Jack his jacket, under the United Workers Party (UWP) government the price for oil was adjusted every month. This policy was changed by the St Lucia Labour Party (SLP) government, to reflect adjustments in oil prices every three months.
In essence under the old system, the price would have been adjusted six times and business and consumers would have already benefited some six months now, and would have been in a far better mood to celebrate Christmas and to welcome the New Year, with lower gas prices and operating cost for electricity.
So if the consequential policy change is not extortion, then please explain!
Meanwhile, the Bolivarian Alliance for the Peoples of the Americas (ALBA) summit on Sunday in Havana, Cuba, a bloc that’s suppose to focus on the social, political and economic integration of the countries of Latin America and the Caribbean, of which Saint Lucia is a member, seems helpless to provide forward market guidance on the advantage and disadvantage of oil futures and its impact on the region, and Venezuela’s worsening socio-economic situation.
As to the analysis for a substantial reduction in the price for gas for consumers, it remains to be seen whether, in the case of Saint Lucia, the government would be using the opportunity to reduce the subsidies, and thereby withhold the full benefit of cheaper crude oil in 2015 that is expected to fall to the lowest level in more than a decade and far below current output.
Or if the full benefit of cheaper crude will be passed onto the consumers. Or if other risk factors of deflation will hurt a deep cut in price to allow government coffers to benefit instead.
It remains to be seen if Kenny Anthony can back-up his words, “Negative growth has now decelerated and I believe that we will see a return to positive growth next financial year. We have bottomed out. Little green shoots of growth have begun to appear” and give consumers a much need relief, and business the breathing room to experience growth from government policy flip-flops.
But as usual the stalling game continues, and in the meantime withholding a dramatic reduction in gas prices that is overdue to consumers.
By: Melanius Alphonse
Melanius Alphonse is a management and development consultant. He is an advocate for community development, social justice, economic freedom and equality; the Lucian People’s Movement (LPM) www.lpmstlucia.com critic on youth initiative, infrastructure, economic and business development. He can be reached at firstname.lastname@example.org