Alberta's energy industry, government is nervous about oil prices hitting 4-year lows
“This is not a crisis in the industry yet. The deficit for the Alberta government will be a bigger problem.”
That's Richard Masson, executive researcher at the University of Calgary School of Public Policy, summed up the impact of a drop in oil prices to around $57 on Monday, the lowest in four years.
Although low prices also lead to a drop in gasoline prices, both the industry and the government are concerned about the broader economic impact.
Alberta Treasury Secretary Nate Horner provided the 2024 budget in Edmonton on Thursday, February 29, 2024. The budget forecasts oil price to be $68. This year, but on Monday, the price fell to $57.
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The Alberta government predicts that the deficit for the fiscal year is $5.2 billion, with oil prices expected to average around $68. West Texas crude oil (WTI) barrels are not aware of the impact of U.S. President Donald Trump on the Alberta economy.
While the selling price of most Canadian oil (WCS) (usually sold at WTI discounts) has shrunk in recent months, if the low prices continue, it will create huge loopholes in the province's budget.
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Masson estimates oil prices fall by $1 per transaction (lasting for a year), which means $700 million to the provincial government's budget.
“It's one of the things that puts pressure on every government plan, and everything the government wants to do,” Mason said. “When they face a bigger deficit than the ones planned,” he said. “So it's a big number, with a deficit of $10 billion.”
When asked to respond to the decline in oil prices, the office of Alberta Treasury Secretary Nate Horner sent a statement to Global News to Global News, “We budgeted the budget throughout the fiscal year, and we are currently one month up to that year. The difference (WCS vs. WTI) remains around $9. The loss of losses will deviate from the low price compared to the $17 budget.”
“We will provide the latest information on our revenue forecast in August,” the Finance Minister's Office added.
The Saudi Arabian-led group known as OPEC+ proposed a significant increase in global oil production in the summer, causing oil prices to drop to their lowest levels in four years.
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Oil prices have been expecting a slowdown in the global economy’s response to Trump’s trade war, and in recent news, oil-producing countries, known as OPEC++, led by Saudi Arabia, could boost global oil production by about 2.5 million barrels per day between October and October, significantly increasing supply supply, but demand has decreased.
“The Saudis are a big producer. They have the ability to be much better than anyone else,” Mason said.
“If they follow the path along this path, they end up with a larger market share, albeit with lower prices, and eventually, when the price rises again, this will translate into a larger market share.”
Prices could drop further if Saudi Arabia follows its threat, said Rory Johnston, an energy market analyst based in Toronto's commodity environment.
“If we further confirm that OPEC will relax this type of 2.5 million barrels a day by October, we will lower it from here,” Johnston said.
“This is almost guaranteed. At present, oil markets at these current prices cannot absorb this level of supply without further pain.”
While low oil prices will be a challenge for government royalties, the Canadian oil industry is in a relatively good state and can storm storm, Johnston said.
“This is not a doomsday situation anywhere for the Canadian oil and gas industry,” Johnston said. “However, this could mean that Canadian oil production growth was one of the most powerful oil production in the world last year.
“All the others are equal, and if these prices continue, I would like to see growth start to slow down a little.”
Lower oil prices could also bring another unexpected benefit, Johnston said, because if Americans pay less for Canadian oil, it could help reduce American-Canadian trade deficits, a huge complaint from the U.S. president.
“If it weren't for crude oil, the U.S. would have enjoyed a decade of trade surplus with Canada,” Johnston said. “All the others are equal, and lower oil prices would mean a lower trade deficit with Canada.
“We've seen many times Trump likes random honors after it happens for other reasons. Oil prices may fall, Canada's trade deficit will shrink, Trump can declare victory at that time and there, right?
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