“It is not yet a crisis for industry. The biggest problem will be for the government of Alberta in its deficit.”
This is how Richard Masson, a member of the executive executive of the University of Calgary’s university school, sums up the impact of the fall in oil prices which fell to around 57 American per barrel on Monday – the lowest in four years.
Although low prices have also led to a drop in gasoline prices, it is the broader economic impact that is worried about industry and government.
Alberta Minister of Finance, Nate Horner, delivers the 2024 budget to EDMONTON on Thursday, February 29, 2024. The budget provides for an oil price of $ 68. By barrel this year, but on Monday, the price plunged to almost $ 57.
Canadian press / Jason Franson
The Alberta government has provided a deficit of $ 5.2 billion for this exercise in the expectation that oil prices on average about $ 68. By barrel of West Texas Brut (WTI) – and it is without knowing the impact of the prices of American President Donald Trump on the economy of Alberta.
Although the sale price of most Canadian oil, known as western canada select (WCS) – which normally sells for a discount compared to WTI – has shrunk in recent months, if low prices are continuing, this will put a huge hole in the province’s budget.
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Masson estimates for each $ 1 decrease in the price of oil – which lasts a year – it means a blow of $ 750 million in the provincial government’s budget.
“It is one of those things that put pressure on each government program, and all that the government wants to do. When confronted with greater than expected deficits, “said Masson. “So these are large figures, $ 10 billion in deficits.”
Asked a response to the drop in oil prices, the Minister of Alberta Finance, Nate Horner, sent a declaration to Global News, reading: “We budget for the whole year and we are currently a month in this year. The differential (WCS vs WTI) remains about $ 9. Compared to the $ 17 budgeted. This will compensate for some of the lost income of the drop in prices. “
The office of the Minister of Finance added: “We will provide an update on our income projections in August.”
The group known as OPEC +, led by Saudi Arabia, proposed a considerable increase in world oil production during the summer, dropping oil prices at their lowest level in four years.
Provided to Global News
Oil prices have dropped on the expectations that the global economy will slow down in reaction to Trump’s trade war, and more recently on news, the group of oil producing countries known as OPEC + and led by Saudi Arabia could increase global oil production by around 2.5 million barrels per day by October – a considerable increase in supply to a request for decline.
“The Saudis are a large producer. They have the capacity to resist a storm much better than anyone,” said Masson.
“If they continue on this path, they will end up with a larger market share for themselves, even if it is at a lower price, and ultimately this will result in them having a larger market share when the price will increase again.”
Rory Johnston, energy market analyst in the context of goods based in Toronto, said that if Saudi Arabia followed its threats, prices could fall even more.
“If we obtain a more in -depth confirmation than the OPEC will carry out this type of 2.5 million barrels per day in October, we are going below,” said Johnston.
“It’s almost assured. There is no way that this current oil market at these current prices can absorb this level of supply without further pain. ”
Although the low oil price will be a challenge for government fees, Johnston said that the Canadian petroleum industry was in a relatively good shape to resist the storm.
“It’s not the type to an adaptation scenario for the Canadian oil and gas sector,” said Johnston. “But what will probably mean is that the growth in Canadian oil production last year was one of the strongest in the world.
“Everything else being equal, if these prices persist, I would expect to see this rate of growth start to slow down a little.”
Johnston said the drop in oil prices could also have another unexpected advantage, as if the Americans pay less for Canadian oil, this could help reduce the Americans’ trade deficit with Canada, which was a huge complaint with the President.
“If it was not for crude oil, the United States experienced a trade surplus for several decades with Canada,” said Johnston. “Everything else is equal, the drop in oil prices will mean a drop in trade deficit with Canada.
“We have seen many times that Trump just likes to take credit at random for things after their arrival for other reasons. The price of oil could decrease, Canada’s trade deficit will shrink, Trump could simply declare the victory then and there, right?
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