Lower Oil Prices Are Set to Hurt Alberta’s Budget

By Charles Kennedy of OilPrice.com

The Premier of Alberta Danielle Smith has warned that lower oil prices will have an impact on the province’s new budget, forcing some spending cuts.

During a televised address on Wednesday night, Smith said “Lower resource revenues will certainly require us to show more restraint than previously predicted.”

“We will ensure this is done thoughtfully and with priority given to the programs and services Albertans most rely on such as health, education and social supports,” the Premier added, as cited by the Canadian Press.

Alberta’s budget is tied to its oil revenues, which are calculated on the basis of the West Texas Intermediate benchmark. Even minor changes in the benchmark’s value can have an impact of hundreds of millions of dollars on the Canadian oil province’s finances.

Alberta’s FY 2023/24 budget was tied to an average WTI price of $79 per barrel but for much of the year that ends this March, the U.S. benchmark has traded lower than this, meaning the budget calculations of the Alberta government had to be adjusted.

Recently, oil prices have been on the mend amid continued tensions in the Middle East but there is no guarantee the rally will either strengthen or continue seeing as there are bearish factors at play as well. Chief among these are doubts about the strength of Chinese oil demand.

Premier Smith has acknowledged that basing the province’s budget on oil revenues is not the wisest option, saying in her speech this week it was time for Alberta to get off the “budget rollercoaster” of oil revenues. She added, however, that the provincial government will not raise taxes to balance the new budget.

For the next financial year, the Alberta budget stipulates an average WTI price of $76 per barrel on average, declining to $73.50 per barrel in the following fiscal year.