The government’s Medium-Term Fiscal Framework 2019-2021 (MTFF) provides fiscal guidance and outlines, along with key policy initiatives. Targeting an average budgetary shortfall of 3.1% of GDP over 2019-2021, it assumes a crude oil price range of USD60-USD70 per barrel. That seems a safe assumption for 2019, given supply concerns arising from OPEC’s output curbs and US sanctions on Iran and Venezuela. Since the beginning of the year, oil has rallied more than 30%. According to a May Reuters survey of economists, Brent crude will likely average USD68.57 a barrel this year.

Over the long term, it is also possible that supply constraints could continue to be an issue and therefore MTFF’s crude oil price assumption could remain safe. Why’s that?

In the aftermath of the oil market collapse in 2014, investment spending in the O&G sector had plunged precipitously. Though it started picking up last year, the sector has not returned to its old spending ways. For example, according to the International Energy Agency (IEA), new investment is increasingly being concentrated in short-cycle projects because of among other things uncertainties over the future direction of the energy system. If there is no major increase in spending on developing new reserves, it added, the world could find itself short on oil in the next decade.