Alberta analysts closely watching 'drastic' oil slump

Alberta is closely watching the energy market as oil prices slip to lows not seen since December 2021 and turmoil continues to rattle the global banking sector.

Political watchers also say the province's prosperity is tightly connected to energy prices, any signs of a weakening economy could affect the election.

The benchmark commodities for crude oil were trading low as of Thursday afternoon, with West Texas Intermediate at US$68 a barrel and Western Canadian Select at US$52 a barrel.

The Government of Alberta's Budget 2023 has projections for 2023/24 at $79 and $78 respectively.

"If you look at oil prices here in the last week, it's pretty drastic how much they've fallen off, but I would say this is almost a bit of the new reality that we have going forward here," said Jeremy McCrea, managing director of energy research at Raymond James.

The recent closures of Silicon Valley Bank and Signature Bank in the U.S. are causing ripple effects through the market.

Markets also saw a pronounced turnaround from Zurich-based Credit Suisse as shares surged Thursday after the Swiss central bank agreed to loan Credit Suisse up to 50 billion francs (US$54 billion) shortly after the lender reported weaknesses, prompting concerns about a potential global economic slowdown.

However, McCrea said the banking crisis is affecting markets as a whole with "near-term movements."

"The complexity of the oil market is so large, I don't think anybody can really pinpoint one item or not in terms of where the prices are really going to go here," before adding that the commodity market is more closely linked to supply issues from producers and demand from consumers.

As to whether these events will continue to hit crude oil  particularly hard, another analyst says recent successes will cushion any blows.

Raoul Leblanc, North America energy market analyst for S&P Global insights, says Alberta energy companies use the rally of 2022 to put themselves in a good position.

"They were smart with the money – they didn't go and waste the money, didn't go spend the money, they paid down debt … In other words, they used the good times to prepare for a bad time," said Leblanc.

However, he points out that current oil prices don't signal a "bad time."

"Could it go lower? Absolutely it could go lower," he said.

ECONOMIC TIES

Charles St. Arnaud, the chief economist at Alberta Central, the trade association for the credit unions of Alberta, says 10 per cent of the province's GDP is driven by energy.

"It's a big wealth generator. We saw it in 2022. When oil prices skyrocketed in, in the first half of the year," he said before adding, "That's actually what's led to our big surplus, fiscal surplus last year."

St. Arnaud said this may be a marginal negative moment in the energy market, but he doesn't expect it will last long.

"W need to be careful not to look at the recent few days and extrapolate that that's what we'll be seeing for the rest of the year."

UNRELIABLE REVENUE

However political watchers say if the tides don't turn quickly, it could present challenges for the current UCP government for the upcoming provincial election.

"A dip in oil prices reminds Albertans of the unreliability of those revenues, whether it be royalty revenues or tax revenues," said Lori Williams, political science professor at Mount Royal University.

She says if oil prices and therefore provincial revenues were to fall further, the money to pay for the programs that current government has proposed in its budget could be in jeopardy.

"A lot of people will be wondering what's going to happen after the next election? Will these prosperity checks continue to come in to Albertans?

Williams adds that conservative government's typically have an edge or advantage from a traditional view of good fiscal management, should the economy become an election issue when voters head to the polls on May 29.

CTV News has also reached out to the Alberta's Minister of Treasury Board and Finance to respond to the oil market and its effect on the province, but did not hear back before publication.

- With files from The Associated Press and Bloomberg