First the good news: oil price fundamentals are shifting in a way that could provide much needed stability to provincial coffers as political leaders dole out billions in promises — their ability to pay for them..The bad news? The full benefits likely won’t be felt until next year, well past the current budget cycle..That’s when perennially bullish Goldman Sachs sees a return to $100 oil depending on a host of factors ranging from the war in Ukraine, Chinese demand, recession fears and future OPEC cuts, which it said in a research note are “overblown.”.“We argue that near-term demand fears — related to US banking stress, China industrial weakness, and falling diesel margins — and financial amplification effects have driven the bulk of the recent selloff,” it wrote..Likewise, Bank of America maintained its $90 forecast for 2024 even as it cut its 2023 assumption by 9% to $80 per barrel of UK Brent, which would imply North American prices of around $75 for West Texas — which is used as a reference for Canadian barrels..It also happens to be the number required for any future Alberta government to break even without going into deficit. Each dollar up or down amounts to about $220 million to the provincial treasury, and as of Friday they were about $3.50 — or nearly $1 billion — underwater at $71.50.. WCS vs WTI differentialsDespite lower prices overall, narrower discounts between Canadian and American crude oil prices is good news for Alberta. .Whether the books are painted in red or black ink after May 29 will surely depend on which party is elected. Both party leaders made lavish spending promises without providing much in the way of how to pay for them..Earlier this week NDP leader Rachel Notley finally revealed the cost of her plan — some $3.2 billion. That number is predicated on raising $1.6 billion in new revenue, largely from a 37.5% hike in corporate income taxes..In addition, the NDP is using the UCP’s oil forecast numbers which may not be wise in light of the present market volatility. Even if they pan out, it produces a $1.2 billion surplus over four year, or half projected by the UCP at a WTI price of $79..On Thursday the UCP costed their own set of policies, which includes $2.8 billion of spending and generating a projected surplus of $3.48 billion over four years without any tax hikes. In fact, the UCP is touting $1 billion per year in tax relief over four years regardless of the oil price..A small but significant shred of good news is the discount between Western Canadian Select — Alberta’s signature bitumen blend — and WTI has halved in recent weeks and is expected to narrow further when the TransMountain expansion comes on line later this year..Speaking at a media availability in Calgary on Friday, former UCP finance minister Jason Nixon said the budget will be balanced despite the “roller coaster” of energy prices due to contingencies backed into the budget document this spring..“We stand by the budget … we will always make sure the budget is balanced,” he said..Referring to the NDP plan, he added: “If the question is who has more economic credibility … we’ve already won.”
First the good news: oil price fundamentals are shifting in a way that could provide much needed stability to provincial coffers as political leaders dole out billions in promises — their ability to pay for them..The bad news? The full benefits likely won’t be felt until next year, well past the current budget cycle..That’s when perennially bullish Goldman Sachs sees a return to $100 oil depending on a host of factors ranging from the war in Ukraine, Chinese demand, recession fears and future OPEC cuts, which it said in a research note are “overblown.”.“We argue that near-term demand fears — related to US banking stress, China industrial weakness, and falling diesel margins — and financial amplification effects have driven the bulk of the recent selloff,” it wrote..Likewise, Bank of America maintained its $90 forecast for 2024 even as it cut its 2023 assumption by 9% to $80 per barrel of UK Brent, which would imply North American prices of around $75 for West Texas — which is used as a reference for Canadian barrels..It also happens to be the number required for any future Alberta government to break even without going into deficit. Each dollar up or down amounts to about $220 million to the provincial treasury, and as of Friday they were about $3.50 — or nearly $1 billion — underwater at $71.50.. WCS vs WTI differentialsDespite lower prices overall, narrower discounts between Canadian and American crude oil prices is good news for Alberta. .Whether the books are painted in red or black ink after May 29 will surely depend on which party is elected. Both party leaders made lavish spending promises without providing much in the way of how to pay for them..Earlier this week NDP leader Rachel Notley finally revealed the cost of her plan — some $3.2 billion. That number is predicated on raising $1.6 billion in new revenue, largely from a 37.5% hike in corporate income taxes..In addition, the NDP is using the UCP’s oil forecast numbers which may not be wise in light of the present market volatility. Even if they pan out, it produces a $1.2 billion surplus over four year, or half projected by the UCP at a WTI price of $79..On Thursday the UCP costed their own set of policies, which includes $2.8 billion of spending and generating a projected surplus of $3.48 billion over four years without any tax hikes. In fact, the UCP is touting $1 billion per year in tax relief over four years regardless of the oil price..A small but significant shred of good news is the discount between Western Canadian Select — Alberta’s signature bitumen blend — and WTI has halved in recent weeks and is expected to narrow further when the TransMountain expansion comes on line later this year..Speaking at a media availability in Calgary on Friday, former UCP finance minister Jason Nixon said the budget will be balanced despite the “roller coaster” of energy prices due to contingencies backed into the budget document this spring..“We stand by the budget … we will always make sure the budget is balanced,” he said..Referring to the NDP plan, he added: “If the question is who has more economic credibility … we’ve already won.”
