07 October 2008

The Can-Opener's surplus prediction

Memorial University economist Wade Locke:

"The price of oil has already averaged in excess of $110, $115 per barrel for the year so far, so even if the prices were to fall down to $10 per barrel, they would still meet their budget projections of $87 a barrel," Locke told CBC News on Monday.

"So the forecasts in the budget should still be fine. They should have a budget surplus even bigger than they what they had forecast."

Okay.

Let's see if that works out.

Given:

  • The 2008 budget estimates predict oil royalties of $1.789 billion based on an assumed average price for oil of $87 per barrel.
  • The 2008 budget estimates forecast a deficit on capital and current account of $414 million.
  • The 2008 budget estimates forecast an additional borrowing requirement of $380 million for a combined cash requirement (borrowing) of $794 million.
  • For the first six months of the fiscal year, Locke gives the average price for crude oil as $115 per barrel.
  • The finance minister forecast a $544 million surplus in public statements and the budget speech, even though that figure does not appear anywhere in the budget estimates voted on by the House of Assembly.
  • All other revenues and expenditures remain as projected in the estimates.
  • Annual oil production is 111 million barrels.

Therefore:

  • In order to attain a surplus of $544 million, provincial oil royalties would have to exceed the forecast by approximately $1.338 billion ($794 million + $544 million);  in total that would be oil royalties at $3.127 billion.
  • If oil averages $115 per barrel for the entire fiscal year, the projected royalty would be $2.361525 billion.
  • If oil averages $115 for half the fiscal year and $87 for the remaining six months, the total provincial royalty would be $2.05535 billion.
  • Budget surplus (deficit) @ $115 for 12 months = ($766 million)
  • Budget surplus (deficit) @ $115 or $87 over 12 = ($1.072 billion)

No matter how you slice it, that doesn't look like a surplus.

No matter how you slice it, that doesn't look like a larger surplus than the one supposedly forecast in the budget.

Anyone who wants to explain Locke's figuring or where the Bondable version is off is welcome to do so.  Either add your comment to his post or send it by e-mail and we'll do it for you.

-srbp-

No comments: