Not long ago, Albertan oil sold for next to nothing. Western Canadian Select, the province’s heavy-crude benchmark, was priced below US$4 a barrel in April, 2020, as the pandemic roiled energy markets.
Today’s circumstances are wildly different. WCS jumped this week to US$100 a barrel, part of a broader surge in oil prices tied to the Russia-Ukraine war and the prospect of troubling shortages of key commodities.
It’s the latest chapter in a strange journey for Alberta’s heavy crude. WCS is priced cheaper than West Texas Intermediate, the U.S. crude benchmark, to account for higher costs of transportation and refining. This year, the discount has averaged US$13 a barrel. But in late 2018, that discount swelled to US$50, partly because of a lack of pipeline capacity in Western Canada. Moribund prices came to symbolize the broader troubles in Alberta’s economy.
Now, the province is riding high again. In its recent budget, Alberta projected a return to surplus in the 2022-23 fiscal year, largely on the back of higher resource revenues. As part of its calculation, the provincial government assumes that WTI will average US$70 a barrel over the coming year – a lot lower than what’s been seen of late. That means a projected surplus of roughly $500-million could wind up much, much higher.
Loftier energy prices, while a benefit to the Canadian economy in many ways, are not uniformly popular. Notably, gas prices are climbing to record heights across the country. That will exert some upward pressure on inflation, which hit a three-decade high of 5.1 per cent in January and could worsen in the near future.
Decoder is a weekly feature that unpacks an important economic chart
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Matt Lundy