Fluctuating oil prices could hit Sask. economy hard: minister
The Saskatchewan government is calling the difference between the price of Canadian oil and oil traded on the global market as “unfortunate” and “worrying.”
Western Canadian Select ( WCS) dropped below US$20 a barrel last week — its lowest price since 2016.
Because WCS is not traded on a worldwide market, it is sold at a discount. The discount compared to West Texas Intermediate ( WTI) last week was US$52.40 a barrel, making it the largest discount in roughly a decade.
Prices have rebounded somewhat since, with WCS hovering around US$30 earlier this week.
According to Saskatchewan’s minister of energy and resources, if that differential were to persist over a full year, the impact on provincial royalty revenue would be about $500 million — roughly nine per cent of Saskatchewan’s entire budget for the current fiscal year.
“That’s money for hospitals, and roads and social services. That’s people and jobs, investment. That’s why this is so real and so worrying,” said Bronwyn Eyre, adding if the differential were to persist it could cost industry in Saskatchewan roughly $7.4 billion.
In April, when the gap between the two prices was significantly smaller, the province estimated an annual $150 million loss in royalty revenue to the Saskatchewan government.
Now, experts point to a number of factors for the large price differential. A lack of pipeline capacity, growing production from the oilsands and a reduction in demand due to U.S. refinery maintenance shutdowns are the leading ones.
Eyre placed much of the blame on the federal Liberal government, saying they “can’t build pipelines and are stacking on regulations and regulatory proposals that are ruinous to the economy.”
She said such measures are the “last thing communities need, the last thing workers need and it’s the last thing the economy needs.”
At the tail end of August this year, the provincial finance ministry released its first-quarter update showing a deficit of $306 million, nearly $60 million smaller than forecast in the April budget.
Revenue, at that time, was predicted to be almost $170 million more than expected — thanks largely in a boost to the forecasted price of oil, with the value of oil production going up eight per cent through the first four months of 2018 compared to the same period last year.
WTI oil prices are currently forecast to average US$68.03 per barrel in 2018-19, up US$9.85 from budget. Since the budget was released, the average spot price of WTI has been US$69.47 per barrel. A Us$1-per-barrel change in the average WTI oil price over a fiscal year results in about a $15-million swing in oil revenue flowing into government coffers.