As of this writing, West Texas [WTI] oil had just reached $112 US. Wow!
This, just after the Alberta government tabled a budget predicting a slight surplus of $500 million, based on oil at $71 per barrel.
There are many “what if’s” and “could be’s” concerning oil pricing and what it means to Albertans. Start with the WTI spread against Western Canadian Select. It usually runs between $10 and $15 per barrel less than WTI. Alberta oil is mostly priced in WCS. At times, the spread has been much higher, as much as $20-30 per barrel.
Then there is the difference between US dollars and Canadian money. The last time oil hit around $110 US, a Canadian dollar was in the range of $1.05. A great time to be buying foreign anythings, but not so great in the oilpatch or in Alberta government. As the Canadian dollar goes higher, great looking prices actually get worse and worse.
Today, it is estimated that every US one dollar rise in oil means $500 million more to the Alberta government. So roughly speaking, that comparatively small $500 million surplus, using today’s numbers, will mean maybe another $20 billion more in surplus.
Considering the entire budget is just over $60 billion, that’s a whopping amount of money on the horizon. In fact, a year ago Alberta looked at a total potential debt of $120 billion! Worse, no end in sight. Today, lots or roses.
Today, with interest rates looking to rise and rise, is probably no time for anybody, especially a politician, to be rolling out their spending plans. Or rubbing his or her hands cackling about their pet projects getting green lights. Killing the debt should be Priority 1.
Will it indeed be a priority? Opinion polls a few weeks before the Ukraine war showed Alberta NDP with a lead over Jason Kenney and the UCP. If you want to know who is rubbing their hands, look no further than Rachel Notley. In fact, you can almost smell smoke from the friction that is creating. They say politics is the art of compromise. If the money does indeed pour in, it is going to be very interesting seeing different plans cash will all be shared.
One place that shouldn’t even be considered is any special interest group, no matter how many votes they can bring to the table. Both small and big businesses watched their enterprises shrivel. Many died. While other groups never missed a beat. No layoffs. No wage freezes. Paydays as usual.
Remember “we are all in this together?” Which really was, some are more “in this” than others. If there is any wealth sharing after paying down debt, it needs to be spread across local taxpayers and Alberta enterprises still alive but still bleeding.
Oil money may not last. As said above, strong oil prices usually mean a strong Canadian dollar. Which in turn means lower real returns from exports, like forest and oil and gas.
And as often said, oil and gas producers always drill themselves to lower prices. Citi, one of the biggest American banks, predicts oil will be $60 by the end of this year.
Let us not forget all those promises not to pee it all away this time.