However, Canada's easternmost province, along with Alberta and Saskatchewan, has enough flexibility to maintain its credit profile even if crude falls to US$60 a barrel and stays there through the 2015-2016 fiscal year, the credit rating agency said.
Oil prices, after having surged above US$100 a barrel last summer, are currently hovering around the $75 mark, with the December contract closing down $1.03 at US$74.61 on Tuesday.
"All of the three provinces are solidly positioned in their rating category and have some headroom there to withstand lower oil prices," said Kathrin Heitmann, lead analyst on the report and assistant vice-president at Moody's.
The comments by Moody's follow Ottawa's fiscal update last week that predicted cheaper oil would shave $500 million from the federal government books this year and $2.5 billion per year between 2015 and 2019.
Alberta and Saskatchewan have the highest credit rating available from Moody's — AAA stable. Newfoundland and Labrador's AA2 stable rating is a bit lower, but still among the top categories.
All three provinces have a track record of adjusting spending to market conditions and have strong liquidity positions, but Moody's says a prolonged slump would hit government coffers.
Newfoundland and Labrador, which anticipates a $538-million deficit for 2014-2015, is expected to come under the greatest pressure.
"The biggest difference between that province and Alberta and Saskatchewan is the lack of a reserve fund to withstand specifically the volatility of the oil prices," Moody's vice-president Michael Yake said.
"Over the last several years, Newfoundland's been running deficits as well, so they're trying to fight deficits at the same time as offset the volatility."
Even though Alberta is Canada's biggest oil-producing province, Moody's says it has the strongest protection against price volatility. That province forecasts a $1.4-billion surplus and its direct oil royalties account for 18 per cent of total government revenues, providing some wiggle room.
Alberta has a $5-billion contingency fund to help cushion it from short-term volatility.
Saskatchewan is budgeting for a surplus of just $75 million, but oil royalties account for only 11 per cent of revenues and it has been putting money into a Growth and Financial Security Fund.
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