WTI's brief dip to $55 US a barrel has analysts urging wait-and-see approach
The West Texas Intermediate oil price dipped to $55.12 US per barrel early Wednesday, leaving analysts to speculate on what's around the corner at a time of mass economic instability.
And while it rebounded to close at $62.71 US, one business group is wondering how the recent downward trend could impact Alberta provincial revenues.
"It's a good reminder of still how dependent the Alberta budget is on crude oil prices, on the whims of the global economy and just the vulnerability there," Alicia Planincic told CBC News in an interview.
She's the director of policy and economics at the advocacy group Business Council of Alberta.
Resource royalties account for roughly 20 per cent of the province's budget, Planincic said.
"The budget assumed the benchmark price for crude oil, West Texas Intermediate (WTI), would be around $68 US a barrel. Just to put that magnitude in perspective, every $1 difference means $750 million dollars less to government revenue," she said.
"If we think about a difference between $57 US a barrel and the $68 US that was assumed, we are looking at about an $8 billion hit to the provincial budget."
There are many variables at play, Planincic said.
"There is still a lot of uncertainty as this trade war really heats up with China, of how much is the U.S. going to be able to withstand? Is it going to back off on tariffs? Ultimately, all this harm is self-inflicted at the moment, it can be walked back. We have already seen that with a number of decisions," she said.
"We should never just take one day or a couple of weeks of WTI prices and panic too much."
CBC Calgary's business economist said the market is trying to find itself under some new realities.
"The market is trying to figure out where demand is going to be, and it's paying undivided attention to any news on tariffs. It's not just limited to oil. Certainly equities are feeling it, too. All commodities," Al Salazar told the Calgary Eyeopener in a Wednesday interview.
"The world is trying to figure out how to value things in the new trade order, should things stay the way they are in terms of tariffs."
The province said it's watching intently.
"We are closely watching the situation," senior press secretary Justin Brattinga said in an emailed statement. "The fiscal year began nine days ago, and our budget forecasts are for the entire year. If any revisions to our forecasts or projections are needed, they will be done at the quarterly updates."
WATCH | Impact of declining oil prices on the energy sector amid U.S. tariffs:
Impact of declining oil prices on the energy sector amid U.S. tariffs
5 hours ago
Duration 8:49
Meanwhile, Planincic said many are taking a conservative approach to big commitments.
"There is a lot of hesitation when it comes to big capital investment decisions, or hiring plans. It makes sense to have a wait-and-see approach," she said. "There is some hesitation. The problem is, that hesitation is going to have a very real effect, even if we don't see tariffs or a global recession. That's another concern. The name of the game is wait and see."
Salazar notes that while one metric has narrowed, it may not have the implications some are hoping for.
"A differential is basically Western Canadian Select (WCS) prices, the prices here in Alberta, relative to the prices of WTI in the Gulf Coast. It is the spread between the two," he explained.
"Notionally, the only thing that should separate the two is the quality of the barrel and the transportation. Historically, when differentials blow out, it is because there is too much oil out of Alberta trying to get out. There is not enough space on pipes so they have to use rail. That's how things blow out."
'Buckle up'
Oil producers need to brace themselves, Salazar said.
"OPEC (Organization of the Petroleum Exporting Countries) announced they were unwinding their production at a bit of a faster rate. It just feels like they are piling on," he said. "The combination of tariffs and OPEC-unwind is not constructive of prices, so as an Alberta producer, you have got to buckle up. This is probably more of the norm."
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