Reuters reported that oil prices edged up on January 10, 2018 to a near two-and-a-half year high after data showed strong demand for crude imports in China and increased US refining activity that drew more crude from inventories.
The current price of WTI crude oil was US$66.15 per barrel. Pipeline outages in Libya and the North Sea seem to be the main culprit this time as OPEC production cuts seemed to be compensated smoothly by an expansion in US shale oil production. In the final analysis, the current market conditions and the near-term outlook for oil reflect the interplay of production, stocks and consumption as the graph below illustrate, but it all points to creeping increases in oil prices. What’s next, US$70 oil in 2018?
Higher oil prices affect Guyana’s economy through a variety of channels:
1. There will be a transfer of income from oil consumers (like Guyana) to oil producers (like the USA). The negative growth effects of higher oil prices have proven in Guyana’s case to be substantial and are expected to eat as much as 0.5 per cent to one per cent of the GDP during 2018 if this trend continues towards US$70 per barrel of oil.
2. There will be a rise in the cost of production of goods and services in the Guyanese economy. Given our dependency on fuel as a source of energy, we must expect a less competitive productive sector in 2018 as the price of oil increases. This exposes how “dotish” the Granger regime’s policy remains with regards to rejecting the only sure low-cost and reliable energy source that is bankable at this time – the Amaila Falls Hydro Project.
3. There will be greater inflation leading to price levels for every shopper climbing in an environment of declining real income as the Granger regime stingily deny workers a living wage. In their quest to starve the workers so that they can feed their greed machine for their friends and family in the Granger cabal, the ordinary man will find life more challenging financially because of the increase in oil prices. As an example, transportation costs will go up and who rides the minibuses in Guyana? Also, the merchants will have no other choice but to recover lost profit by way of increased prices. These responses can create a situation of social stress (reckless living in hopelessness).
The Granger regime clearly has not worked out a game plan to deal with the reality that Guyana has a low per capita income but a high level of oil imports relative to GDP. Such a situation is like an economic Molotov cocktail where our current account deficit is expected to further deteriorate, our debt will climb and the access to global capital will wither. More expensive oil imports is not the solution President Granger; Amaila Falls Hydro is.
The fundamentals of running an economy always lead back to how you are influencing aggregate demand. If more of the income from the nation is diverted to purchasing more expensive fuel and that situation is supplemented by an inefficiently run Public Sector that is taxing the Private Sector more to pay for its inefficiencies, then less will be left to drive domestic demand and that is why Minister Jordan will have the unenviable duty in 2018 to revise his growth projection downwards.
I was in Guyana and what I saw was a rapid deterioration of the private real estate in many parts of Georgetown and even worst deterioration in rural areas. Guyana is in financial crisis and listening to President Granger’s New Year’s message clearly exposed that he is a man who has taken the role of a proverbial ostrich in a mental bubble all by himself.
If this situation with this creeping increase in oil prices continues at this rate, Guyana can expect a sustained annual decrease of GDP about 0.5 per cent to one per cent annually and it can be more as the productive sector further deteriorates. So let us be clear, sugar production and oil prices are intimately connected, only the decision makers in the Granger regime seems unaware of this fact. The adverse financial impact on the lives of the ordinary people will be quite severe in 2018. In an environment of policy paralysis from the Cabinet of President Granger, the experiences for the ordinary people will be brutal. A wise President would ask for help and stop being aloft and this clueless.
