Slumping oil prices are causing uncertainty for Alberta as it prepares its next budget. The province, heavily dependent on oil revenues, is on a knife’s edge as it grapples with the possibility of a deficit or surplus in its budget. Experts say that if oil prices don’t rise, the government may have to revise its spending plans or face a modest deficit.
Oil prices have dropped nearly 40 percent since their peak of over $120 per barrel in 2022. This week, prices have fluctuated in the low $70s per barrel, a significant decline from the $90 range seen in September.
The Alberta government has concluded public consultations on its upcoming budget, which will be unveiled in February. However, economists are unsure whether the province will be able to balance its books given the current oil price situation.
According to University of Calgary economics professor Trevor Tombe, if oil prices remain around the current level of $72 per barrel, the government may have to adjust its spending plans or face a deficit. Tombe explains that every $1 change in oil prices translates to a $630-million impact on Alberta’s finances.
The province’s break-even point is currently estimated to be around $72 per barrel. Alberta collected a surplus of $11.6 billion in the 2022-23 budget year and was on track for a $5.5-billion surplus in the current fiscal year, ending on March 31. However, with oil prices hovering in the low $70s, sustaining a surplus may prove challenging.
While lower oil prices provide relief for drivers at the pump and contribute to lower inflation rates, they pose a significant financial challenge for resource-dependent provinces like Alberta. The Canadian dollar’s strength, variations in oil prices between Western Canada and the United States, and other commodity prices such as natural gas all impact Alberta’s finances beyond the government’s control.
Economists predict that oil prices will remain relatively unchanged for the rest of 2024. Forecasts range from $65 to $80 per barrel, with most experts expecting prices to remain steady. Factors such as geopolitics, including conflicts in the Middle East, could drive prices higher, while increased oil production and a sluggish global economy could keep prices low.
Despite the uncertainty, Alberta remains in a better financial position compared to other provinces, thanks to its economic outlook and relatively lower debt-to-GDP levels. However, the province will still need to carefully consider its spending and find ways to adapt to changing oil prices.
In conclusion, Alberta’s next budget is hanging in the balance as the province navigates uncertain oil prices. Whether it will achieve a surplus or face a deficit remains unclear, but economic experts emphasize the need for caution and flexibility in spending plans. As oil prices continue to fluctuate and global factors play a role, Alberta’s government must carefully manage its finances to ensure a stable future for the province.
