Alberta budget benefits from oil prices no one had bargained for

Alberta is welcoming the sharp rise in the price of oil. As Sarah Offin reports, the spike in oil prices could help the province’s post-pandemic economy recovery faster than expected.

Alberta’s economic recovery from COVID-19 has lagged behind other provinces so far, but the tides could soon change.

The price of West Texas Intermediate (WTI) this month has been hovering over US$70 per barrel for the first time since 2018.

“It’s one of the sharpest increases in oil prices that we’ve seen in a very long time,” economist Trevor Tombe said.

“We receive a lot of revenues from royalties on oil and gas sales, and when prices are high, that means revenues of oil producers are high and the royalty payments that they make are high.”

“Each one dollar change in the price of a barrel of oil this year is worth about $230 million to the Alberta government’s bottom line.”

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Just over a year ago, oil prices took a startlingly swift and unprecedented slide.

On April 20, 2020, U.S. crude oil futures turned negative for the first time in history. Analysts have said the development was driven in part by the sudden drop in demand for the commodity because of the COVID-19 pandemic, as well as by a price war between Russia and Saudi Arabia.

Even just six months ago, WTI was just over US$40 per barrel.

The provincial budget released earlier this year was anticipating oil prices of about $46 per barrel, with those projections rising to about $56 per barrel in 2023 and 2024.

Read more:
Oil industry still recovering 1 year after commodity’s historic freefall into negative pricing territory

Tombe said best estimates suggest the price will average out at around $68 per barrel for this fiscal year, a solid $22 per barrel more than the province had bargained for.

“Each day that oil prices remain at their current level that’s worth somewhere between $10 million to $15 million to the Alberta budget,” Tombe said. “So even if it doesn’t last a very long time, it’s a very welcome development that’s going to help ease some of the pressures that our government faces.”

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“We still have a significant deficit right now,” said Doug Schweitzer, Alberta’s minister of jobs, economy and innovation. “But I think you’re going to see that bottom line improve year over year, and it’s really encouraging to see us get to this point.”

Schweitzer said the province is benefiting from improvements in a number of sectors.

“It’s good news when he sees this pricing going up not only with the WTI being over US$70, we’ve got low differentials, you got natural gas with pretty high pricing over the last little while, prices are looking positive, the lumber industry is looking positive – so a lot of the conventional drivers of the Alberta economy are all heading in the right direction right now.”

Tombe suggested the bump in oil prices alone could lead to five or six billion dollars in additional revenue for the provincial government, which would have a big impact on the projected $18-billion deficit.

© 2021 Global News, a division of Corus Entertainment Inc.

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