Fiscal and monetary architects were still paying keen interest to oil price fluctuations on the international market knowing that soaring costs could likely represent an omen for economic growth here.
Oil prices were continuing to fall yesterday, on the same track that it was on last week, after industrialized nations released emergency stocks to prevent a fuel crisis after Hurricane Katrina.
Consumer confidence and the impact on fuel demand and economic growth also dealt the oil market a heavy blow.
Locally, gasoline prices hovered around $4.20 per gallon, electricity consumers bore an increased cost in fuel surcharges and drivers were urged to carpool.
“If the price of oil gets out of control it usually does not bode well for the health of the economy and the economic growth, so we are watching it and as long as it stays within certain levels we don’t think the impact will be that great, but if you have other occurrences that will disrupt the supplies and send the price soaring of course it’s cause for concern,” said Parliamentary Secretary in the Ministry of Finance Michael Halkitis.
Analysts at the Central Bank of the Bahamas in their monthly economic and financial report, noted that recent surges in oil prices alongside reduced oil subsidies have negatively impacted Asian economies.
In July, oil-producing countries increased their oil production to a record 26-year high of 30.24 million barrels per day. Nonetheless, oil prices remained at record levels in the last few weeks as world demand outweighed available capacity.
Recently, the Managing Director of the International Monetary Fund Rodrigo de Gato classified oil prices as one of the most important risks at this time in Asia.
The impact of those prices has been mild, he said, but projected that if high oil prices persist, which will likely happen, then economic growth could be affected.
He also suggested what policymakers should do to sustain growth in this environment.
“We believe that it’s important that budgetary policies continue to be tending toward reducing imbalances and reducing debt,” he said. “We see clearly that government [has] to make consumers and companies aware of the true price of energy.
“This is not going to be just a short lived increase in the oil prices. We see structural reasons for it.”
What IMF officials conceded is that the predicament is placing a strain on all economies especially in low-income countries.
The latest evaluation of the outlook for the Bahamian economy, which is heavily reliant on tourism inflows, is that key vulnerabilities remain.
Officials said one of those concerns is the persistent record high energy prices which are likely to impact travel costs and concerns surrounding the very active 2005 hurricane season.
“Oil is an input into many things from electricity to the cost of transportation and so if the price of oil is soaring then that means as a tourist based economy that depends on people being transported here, as the price of transportation goes up that might have an effect on the choices people make in terms of traveling,” Mr. Halkitis said.
Yesterday, London Brent crude was off $1.34 at $64.72, back to levels seen before Katrina disrupted U.S. Gulf oil production and refining operations. Closed for Labor Day, U.S. crude finished at $67.57 a barrel on Friday, after peaking last week at a record high of $70.85 a barrel.
Meantime, the Bahamas Government sent a delegation to Jamaica for talks on the Petro-Caribe oil agreement where Venezuelan President Hugo Chavez was scheduled to discuss details of the cost slashing measure.
Each of the 13 countries that signed the initial agreement with Venezuela – including The Bahamas – to activate the terms of the deal will have to sign a bilateral pact.
Countries that signed the agreement will receive preferential terms for the purchase of oil. In some cases, Venezuela would even accept goods like sugar or bananas in exchange for oil.
Minister of Foreign Affairs Fred Mitchell; Minister of Trade and Industry Leslie Miller and Minister of Works and Utilities Bradley Roberts are attending the parley.
But there are some who have expressed skepticism about the potential benefits.
For instance, the Nassau Institute, a local think tank has suggested that all that glitters is not gold.
“If the deal with Chavez succeeds in forcing the withdrawal of the current suppliers due either to government coercion or undercutting prices, and the country is left dependent on a single supplier there is no guarantee that the good times of the initial lower prices will last,” the Institute wrote recently. “In fact they won’t last, count on it.”
By: Tameka Lundy, The Bahama Journal
