Alberta’s not quite back in the black..But despite lower than projected oil prices, the provincial budget should be in much better shape than either the benchmark West Texas Intermediate (WTI) price or conventional wisdom would dictate when the province releases its fiscal first quarter numbers later this summer..That’s because the differential — or discount — between Alberta’s signature Western Canadian Select (WCS) blend to WTI has been narrowing significantly over the past several weeks and is expected to shrink even further when the Trans Mountain pipeline expansion comes on line later this year..Meanwhile, Mexico is reducing its own heavy oil exports to the US which will increase the call on Canadian crude in the key US Gulf Coast market..At quarter’s end on June 30 the difference between the two, net of transportation to Cushing, Okla. was just $5.35 US per barrel compared to more than $14 at the start of the year..Given that more than 70% of Alberta’s crude slate is priced off WCS rather than WTI — and sold in Canadian dollars — that means Canadian heavy oil producers are reaping as much as $10 more per barrel than they would have otherwise despite lower prices overall. .Share prices have followed suit. Calgary-based MEG Energy has gained almost 30% since the start of the year while pure play heavy oil producer Athabasca Oil Corp. has seen its stock raised 34% in the same period..That bodes well — or not so bad — for Premier Danielle Smith’s UCP government which ran a heavy spending campaign when it was re-elected in May..The province is counting on a WTI price of $79 to balance the books and post a modest $2.5 billion surplus..Every $1.50 above or below that number amounts to about $1 billion to the treasury, offset by factors such as the differential and the value of the Canadian dollar..On Monday WTI was trading around $73 which puts the government ledger well underwater despite a $1.5 billion contingency fund..Just how much won’t be known until Finance Minister Nate Horner releases his fiscal first quarter update, usually in mid to late August..To complicate matters, Smith has vowed the first order of business of her new government will be to introduce a bill to prevent future governments from increasing personal or business taxes without a referendum while maintaining a balanced budget..That means the only alternative would be to cut spending, or roll back previously announced tax breaks..When he released his annual update on June 29, Horner said those issues would have to wait until August. “We’re not as worried as you may think,” Horner said at the time..Likewise Premier Danielle Smith told a Calgary Chamber of Commerce audience she was confident higher corporate tax revenue — which she credited to lower corporate tax rates — along with a narrower differential, would offset that impact..Even more relief could be on the horizon. On Monday Deloitte Canada forecast oil prices to increase modestly over the next few months due to a combination of OPEC production cuts while the US begins to refill its strategic petroleum reserves. The war in Ukraine is also a wildcard.."Even though China has increased its consumption of crude oil, overall global demand will remain somewhat muted which, in normal circumstances, would lead to steady or lower prices," said Andrew Botterill, Deloitte Canada’s national energy leader. ."We don't expect that to happen in the next quarter, however, as cuts in supply and the drawing down of crude oil stocks, particularly in the United States, should provide some short-term support for prices."
Alberta’s not quite back in the black..But despite lower than projected oil prices, the provincial budget should be in much better shape than either the benchmark West Texas Intermediate (WTI) price or conventional wisdom would dictate when the province releases its fiscal first quarter numbers later this summer..That’s because the differential — or discount — between Alberta’s signature Western Canadian Select (WCS) blend to WTI has been narrowing significantly over the past several weeks and is expected to shrink even further when the Trans Mountain pipeline expansion comes on line later this year..Meanwhile, Mexico is reducing its own heavy oil exports to the US which will increase the call on Canadian crude in the key US Gulf Coast market..At quarter’s end on June 30 the difference between the two, net of transportation to Cushing, Okla. was just $5.35 US per barrel compared to more than $14 at the start of the year..Given that more than 70% of Alberta’s crude slate is priced off WCS rather than WTI — and sold in Canadian dollars — that means Canadian heavy oil producers are reaping as much as $10 more per barrel than they would have otherwise despite lower prices overall. .Share prices have followed suit. Calgary-based MEG Energy has gained almost 30% since the start of the year while pure play heavy oil producer Athabasca Oil Corp. has seen its stock raised 34% in the same period..That bodes well — or not so bad — for Premier Danielle Smith’s UCP government which ran a heavy spending campaign when it was re-elected in May..The province is counting on a WTI price of $79 to balance the books and post a modest $2.5 billion surplus..Every $1.50 above or below that number amounts to about $1 billion to the treasury, offset by factors such as the differential and the value of the Canadian dollar..On Monday WTI was trading around $73 which puts the government ledger well underwater despite a $1.5 billion contingency fund..Just how much won’t be known until Finance Minister Nate Horner releases his fiscal first quarter update, usually in mid to late August..To complicate matters, Smith has vowed the first order of business of her new government will be to introduce a bill to prevent future governments from increasing personal or business taxes without a referendum while maintaining a balanced budget..That means the only alternative would be to cut spending, or roll back previously announced tax breaks..When he released his annual update on June 29, Horner said those issues would have to wait until August. “We’re not as worried as you may think,” Horner said at the time..Likewise Premier Danielle Smith told a Calgary Chamber of Commerce audience she was confident higher corporate tax revenue — which she credited to lower corporate tax rates — along with a narrower differential, would offset that impact..Even more relief could be on the horizon. On Monday Deloitte Canada forecast oil prices to increase modestly over the next few months due to a combination of OPEC production cuts while the US begins to refill its strategic petroleum reserves. The war in Ukraine is also a wildcard.."Even though China has increased its consumption of crude oil, overall global demand will remain somewhat muted which, in normal circumstances, would lead to steady or lower prices," said Andrew Botterill, Deloitte Canada’s national energy leader. ."We don't expect that to happen in the next quarter, however, as cuts in supply and the drawing down of crude oil stocks, particularly in the United States, should provide some short-term support for prices."
