Nice deep gas cuts

Jonathan Vidal knows what if feels like to wilt under the burden of high fuel prices. As a tour operator, Vidal pays regular visits to the petrol station. And as prices got higher and higher, he was forced to dig deeper and deeper and scrape the bottom of his pocket to fill up.

Not too long ago, he paid over EC$15.00 for a gallon of petrol, and it hurt. As recently as last month, when gasoline sold at EC$12.82 a gallon, he felt the weight.

"I was checking my petrol for January, I spent about $1700 on petrol," he reveals to The Sun.

What a difference a couple dollars make!

With oil prices tumbling on the world market, Vidal, like the rest of Dominica, has begun to see the benefits. And the most direct way is at the petrol pump. On 9 January, the price of gasoline was reduced to EC$11.42 a gallon. Today it is EC$10.47, the lowest it has been in a very long time.

In January 2014 oil traded at US$115 a barrel. However, rising production, falling demand and the refusal of the cartel, the Organization of Petroleum Exporting Countries (OPEC), to cut production, have sent prices into a freefall. Currently, oil sells for around US$50 a barrel.

"It's fantastic," Vidal says.

At the current retail price, Vidal spends between EC$600 and EC$700 less to fill up than he did just last month. And, as a small businessman, this is great news.

"It helps the bottom line. I could live with seven dollars a gallon."

Experts predict these prices will be around for a long time. The boss of oil giant BP Bob Dudley has said that prices could remain low for up to three years.

Economists say this is good news for heavy oil consuming countries and for consumers like Vidal.

"It is good news for the global economy," IMF managing director Christine Lagarde said this month.

The positive effect on growth should arise because oil consumers tend to spend more of their gains than oil producers cut their consumption, says the Financial Times, one of the world's leading business news and information organisations,

The local economist, McCarthy Marie agrees, telling The Sun that transportation, electricity and other costs will go down as a direct result of the falling prices. He predicts just what Vidal is already experiencing with the bottom line.

"If the cost of transportation goes down the bus driver makes a greater profit, which is what I expect them to do," Marie says. "The price of electricity should go down, because the fuel surcharge will go down and everything that depends on electricity should go down. So inflation should stabilize, if not decrease. Even the housewives will benefit. As a matter of fact they are already benefiting, the price of cooking gas has already gone down."

However, in the spirit of Isaac Newton's third law of physics, Marie sees a major down side to the situation. Except, unlike Newton's law, the reaction, while opposite, is not necessarily equal.

"Of course, that presents us with a dilemma," he tells The Sun.

This is in reference to the fact that Dominica depends heavily on Venezuela for support for a lot of its social programmes. And right now Venezuela, the country with the world's largest proven oil reserves, is hurting, its economy crumbling under the weight of lower oil prices.

Last October the IMF predicted that the Venezuelan economy would contract by one per cent in 2015. Last month it revised these numbers, forecasting a seven per cent contraction instead.

Oil account for 95 per cent of Venezuela's exports, and its current national budget is based on the higher oil prices. According to OPEC, the country produces two million barrels of crude oil a day. At US$115 a barrel, that's well over US$80 billion a year in oil income, but at current prices, it's worth closer to US$38 billion.

And Venezuelans are feeling the pressure with medical supplies running low and people queuing at pharmacies and supermarket for basic necessities like baby formula, flour, milk and even toilet paper, all of which are bring rationed.

With problems like these at home, there's no way Caracas can continue to provide the sort of assistance to Dominica that it has provided in the past, Marie suggests.

"Some of the programmes the government undertakes that are financed by Venezuela, like the housing revolution, I don't see how these programmes would progress, at least (not) at the same level that Venezuela can finance. Again, Venezuela and its assistance to us will be in jeopardy."

And, he adds, there's one other area that ought to concern the government here. As prices of goods and services fall, so too will the amount of revenue the administration collects from the value added tax. And this could prove troublesome for an administration that anticipates raising nearly half (44 per cent) of its tax revenue – estimated at over 312.5 million dollars - from VAT, and also relies heavily on this tax for many of its programmes.