Dunderdale issues 'reality check' as oil prices drop

Newfoundland and Labrador Premier Kathy Dunderdale says the province will cut back on travel and leave some vacant positions unfilled for now as oil prices bubble well below government forecasts.

The province is looking for tens of millions in savings this year, but is facing a potential shortfall of hundreds of millions more than expected.

"We havent revised the budget, but were taking some measures, because we need to be really mindful," Dunderdale told reporters at Confederation Building Monday.

'Im not so worried about this year. Im more worried about next year. Because if oil stays where it is, our deficit could be around $1 billion next year.' Premier Kathy Dunderdale

"I dont want to leave it till the end of the year and then try to figure out where we are."

According to the premier, every $1 drop in the price of oil below government estimates results in nearly $20 million less being funnelled into the provincial treasury.

Newfoundland and Labrador has budgeted for oil to average $124 a barrel in 2012-13.

It began the fiscal year in April near that level, but bottomed out near $90 last month before rebounding back above $100.

Brent crudea close, but not exact, reference point for Newfoundland productstood at $103 a barrel on Monday.

"Everybody sees whats happening with the price of oil, and I see every day what thats doing to our budget," the premier said.

She iscalling the situation a "reality check."

Dunderdale said this years deficit could be "significantly higher" than the initial estimate of $258 million.

She says that number could go as high as $600 million or $700 million.

And, she warns, things could get worse.

"Im not so worried about this year," Dunderdale said. "Im more worried about next year. Because if oil stays where it is, our deficit could be around $1 billion next year."

The premier said the province is not immune from the impact of global events.

"We dont live in a bubble," Dunderdale said. "Whats going on in China, what is going on in India, what is going on in Europe, has a direct effect on Newfoundland and Labrador. And we need to be mindful of that all the time."

But at this point, no deeper cuts are planned.

"Im not there yet," Dunderdale said. "No, Im not there yet. Im seeing how this goes. Were keeping a close eye on it."