Ky­ron Reg­is

ky­ron.reg­is@guardian.co.tt

The world oil mar­kets were turned up­side down yes­ter­day as the price of a bar­rel of crude crashed to less than ze­ro dol­lars and up to late last night was trad­ing at US60 cents a bar­rel—less than the cost of a bot­tle of wa­ter.

The pre­cip­i­tous fall in prices could spell more trou­ble for the T&T econ­o­my, lead­ing to an even larg­er deficit and hurt­ing Gov­ern­ment’s at­tempts to avoid a free-fall of the econ­o­my and en­dan­ger­ing state-owned Her­itage Pe­tro­le­um. (See oth­er sto­ry)

Her­itage Pe­tro­le­um yes­ter­day an­nounced it will cease ex­ports of its dai­ly pro­duc­tion and in­stead store the crude for the next two months in the hope prices im­prove.

Econ­o­mists and in­dus­try ex­perts have warned a pro­longed pe­ri­od of low prices could lead to a cat­a­stroph­ic de­cline for the econ­o­my and Prime Min­is­ter Dr Kei­th Row­ley has pub­licly asked if the coun­try can sus­tain its sub­si­dies and trans­fers in the midst of the de­pressed prices.

En­er­gy econ­o­mist Gre­go­ry McGuire yes­ter­day con­tend­ed that if the his­toric prices are pro­longed, it could have a rav­aging im­pact on T&T’s econ­o­my. He not­ed the drop came about be­cause there was low de­mand.

“That has hap­pened be­cause every­body who has crude, phys­i­cal bar­rels, are sat­is­fied with their phys­i­cal bar­rels that they have to­day—so no­body’s buy­ing,” McGuire said.

He said the sit­u­a­tion would re­main volatile and prices low un­til the ma­jor economies of the world re-open. This means the T&T Gov­ern­ment will have a much larg­er fis­cal deficit—where the amount it bor­rows is much larg­er than the rev­enue it is gen­er­at­ing to re­pay, he not­ed.

“Every­body is go­ing to have to hold strain and take some pain,” McGuire said of the dif­fi­cult pe­ri­od mov­ing for­ward.

The last three months have been dev­as­tat­ing for oil-based economies and a fall in oil and gas prices has left a $5 bil­lion hole in the T&Ts bud­get, ac­cord­ing to Fi­nance Min­is­ter Colm Im­bert.

Crude prices are about 30 to 40 per cent of to­tal oil rev­enue and T&T makes more mon­ey for every bar­rel of oil it pro­duces when com­pared to a bar­rel of oil equiv­a­lent of nat­ur­al gas.

This has in ef­fect meant less mon­ey to pay for things like CDAP, gov­ern­ment pen­sions and to fund health care.

En­er­gy Min­is­ter Franklin Khan yes­ter­day said the low oil prices would have a dif­fer­ent im­pact on T&T then oth­er coun­tries. He said T&T pro­duces Ga­le­o­ta crude and Mo­lo crude, which is ref­er­enced against Brent Crude that was trad­ing at ap­prox­i­mate­ly US$25 to US$30 per bar­rel. Brent is the most com­mon­ly used bench­mark price for crude oil trad­ed in­ter­na­tion­al­ly, in­clud­ing to Asia. Brent has be­come more pop­u­lar a bench­mark since West Texas In­ter­me­di­ate (WTI) has be­come more rep­re­sen­ta­tive of the US in­dus­try than the glob­al oil mar­ket.

“T&T’s crude prices, luck­i­ly are not sub­ject to this sub­ze­ro at­tack,” Khan said.

“Hav­ing said that, we are still in a very, very pre­car­i­ous po­si­tion with the over­all price of crude and how it af­fects the econ­o­my. So while we’re not in that dis­as­trous calami­ty to­day, the mar­ket trend is still not show­ing any lev­el of op­ti­mism.”

Khan al­so said the es­ti­mat­ed loss of rev­enue be­cause of the price hit could be even more than what was ex­pect­ed by Im­bert.

When asked about Her­itage Pe­tro­le­um dur­ing this pe­ri­od, Khan said the com­pa­ny “luck­i­ly” has stor­age ca­pac­i­ty for an es­ti­mat­ed three months and is mon­i­tor­ing the mar­ket to dis­cern when it can make its next ship­ment.

Asked whether Her­itage will not make ship­ments un­til the prices re­bound, he said, “Let us say ‘Ok I am not ship­ping un­til the mar­ket re­bounds’ and then the mar­ket takes two and half months to re­bound and all your tanks filled—you will have shut in your wells.”

He said there must be some sales along the way but this is for the ex­perts to analyse and make a judge­ment of where the com­pa­ny’s op­ti­mum po­si­tion lies.

When oil prices col­lapsed the first time due to COVID-19’s im­pact on the glob­al mar­ket and geopo­lit­i­cal ten­sions be­tween Sau­di Ara­bia and Rus­sia, Khan said T&T could be se­vere­ly hurt as the coun­try is a price tak­er.

Since then, there was a re­cent agree­ment by ma­jor oil pro­duc­ers to re­duce glob­al out­put by 10 per cent (10 mil­lion bar­rels a day). The deal was re­port­ed to be the largest cut in oil pro­duc­tion agree­ment for many years.

Mean­while, T&T En­er­gy Cham­ber CEO Dr Thack­wray “Dax” Dri­ver be­lieves the low price pe­ri­od will not be too pro­longed, but said the coun­try must ad­just ac­cord­ing­ly.

“While these ex­treme­ly low WTI (West Texas In­ter­me­di­ate) prices are un­like­ly to last for a long time, Trinidad & To­ba­go needs to plan for a low price en­vi­ron­ment and have pol­i­cy mea­sures in place that re­flect that sce­nario,” Dri­ver said.

WTI crude oil fu­tures plunged more than 100% to neg­a­tive US $13.01, while Brent slid 7.4 per cent to US$26 a bar­rel.

Dri­ver said the coun­try is cur­rent­ly in un­chart­ed ter­ri­to­ry and it is ex­treme­ly dif­fi­cult to pre­dict what will hap­pen with oil prices. He said yes­ter­day saw the to­tal col­lapse of WTI oil prices—which re­flect prices for on­shore pro­duc­ers in North Amer­i­ca. The de­clines in Brent have been no­table but nowhere near the same ex­tent of WTI, he added.

Ad­di­tion­al­ly, Dri­ver said US nat­ur­al gas prices rose slight­ly yes­ter­day but are still at very low lev­els.

“Low oil and gas prices ob­vi­ous­ly have ma­jor im­pli­ca­tions for Trinidad and To­ba­go as we de­pend on these com­modi­ties for the ma­jor­i­ty of our ex­port earn­ings, along with petro­chem­i­cals (whose price tend to re­flect oil prices, though with some de­lays and nu­ances),” Dri­ver said, not­ing it is very dif­fi­cult to say how long low prices will con­tin­ue be­cause it large­ly de­pends on end­ing health-re­lat­ed COVID-19 lock­downs in the ma­jor mar­kets.