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Good morning. It’s James Keller in Calgary.

Alberta’s economy was already struggling when COVID-19 hit, and the pandemic only made things worse, as much of the economy ground to a halt and oil prices fell to unthinkable depths.

The impact on the province’s finances was catastrophic. A projected $7-billion deficit for last year ballooned to $17-billion, and the budget released in February for 2021-22 was even more dire, projecting a deficit of $18.2-billion.

But a lot has changed since February, and the province’s finances are suddenly looking a lot better as an economic recovery has pushed up demand – and prices – for oil.

Now, Alberta is expecting to have its best year in terms of oil and gas revenue in a decade, with revenue from bitumen royalties in particular hitting their highest historic level.

The provincial government’s latest quarterly fiscal update, released on Tuesday, is now projecting a deficit of $5.8-billion, with the situation improving in the near term. The February budget, for example, projected a deficit of $8-billion in 2023-24; that has now been revised to $2.3-billion.

The United Conservative Party government is striking a cautious tone, welcoming the dramatically improved financial picture while promising to keep a “steady hand on the wheel” at a time when there is still much uncertainty.

Aside from the top-line numbers, the fiscal update is part of two larger narratives.

The first is that Alberta’s budget is still very much controlled by the “royalty roller coaster,” with its economic fortunes largely tied to global forces beyond its control.

This is nothing new, but it’s a reminder that promises from successive governments to diversify the province’s revenue to make it less dependent on oil and gas income have accomplished little.

The second is the political realities facing Premier Jason Kenney. The Premier has been fending off internal discord throughout most of the pandemic and he now faces a leadership review next year (officially in April, but potentially earlier if UCP constituency associations get their way).

The relatively rosy economic news is widely seen as a potential lifeline for Mr. Kenney, who no doubt is hoping that some angry party members will be able to look past their grievances if the economy is firing on all cylinders by early next year.

Mr. Kenney may even be able to return to a promise to balance the budget by 2023 – addressing an issue that is of particular importance to many in his party.

But significant risks remain for both the provincial budget and Mr. Kenney. Oil prices could remain extremely unpredictable given the situation with the COVID-19 pandemic – a reality that was made painfully clear last week as a new variant named Omicron emerged.

The variant news prompted countries around the world to impose travel restrictions, mainly targetting countries in Africa where the variant was first identified, and that sent financial markets and oil prices diving. Oil prices fell 10 per cent on Friday alone.

“The events of the last few days around this new COVID variant reminds us that we’re still in a period of great uncertainty and volatility,” said Alberta Finance Minister Travis Toews. “It reminds us that we need to focus on what we can manage – a focus on economic growth and holding the line on spending.”

This is the weekly Western Canada newsletter written by B.C. Editor Wendy Cox and Alberta Bureau Chief James Keller. If you’re reading this on the web, or it was forwarded to you from someone else, you can sign up for it and all Globe newsletters here.