Deficit or surplus? Alberta budget on 'knife's edge' amid sluggish oil prices

Slumping oil prices are bringing some relief for drivers filling up their gas tanks this winter, but they're also delivering a financial hit to some provinces as they prepare their next budgets — notably Alberta.

Oil prices have fallen by almost 40 per cent since reaching a high of more than $120 US per barrel in 2022. Oil was trading at more than $90 in September, but this week, prices have fluctuated in the low $70s (all figures in US dollars).

The Alberta government wraps up public consultations on its next budget this week, and experts aren't sure whether the province will be able to balance its books when the next budget is unveiled in February.

Alberta is on a "knife's edge," said University of Calgary economics professor Trevor Tombe, as it's too hard to predict if the province will project a budget surplus or deficit for the next financial year.

"If we go into this coming fiscal year starting April 1 with $72 per barrel, that might put the government into a situation where they either have to revise their spending plans or face a modest deficit," he said in an interview.

The price of $72 is likely the province's break-even point right now, Tombe said, considering the government's own financial projections. Every $1 change in North American oil prices brings a $630-million impact to Alberta's bottom line.

"There's a big difference between the mid 70s and the low 70s, and that's got to be what's occupying the government's mind right now," he said.

Sagging oil prices have helped lower the rate of inflation in Canada, and most economists are forecasting that commodity prices will remain relatively unchanged for the rest of 2024.

National Bank of Canada chief investment officer Martin Lefebvre told CBC News on Thursday that he expects an average oil price in the range of $65 to $80 per barrel.

Other recent predictions for the price of West Texas Intermediate — typically regarded as the benchmark for crude oil — include $65 by Morningstar DBRS, $72 by Deloitte Canada and $75 by ATB Financial.

"Pretty steady, to be honest," Robert Kavcic, senior economist with the Bank of Montreal, said about the price of oil in 2024. "We don't see a whole lot of movement."

Alberta collected a petro-powered surplus of $11.6 billion in the 2022-23 budget year and was on track for a $5.5-billion surplus this current fiscal year, which ends on March 31.

"If they're really tied to a balanced budget, then there's not that much wiggle room given what we're seeing in oil prices today," Kavcic said about the province's next budget.

"It depends what they do on the spending side as well. So they can obviously respond to changes in oil prices," he said, with an expectation of oil averaging in the mid to high $70s per barrel in 2024.