Will a rapid rise in oil prices this week recalibrate the outlook for the province’s energy-powered economy?

That’s the tricky issue experts are striving to figure out, as oil prices have surged more than 35 per cent since the beginning of March with the escalating war in the Middle East.

Benchmark West Texas Intermediate (WTI) crude closed at US$90.90 a barrel on Friday, up almost $10 from Thursday.

It’s a sharp upturn since New Year’s Day, when crude prices were sloshing around $57 a barrel and the growth outlook for the provincial economy was relatively modest.

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“We have entered scenario-land. You can’t be definitive, but you can start thinking through scenarios,” said ATB chief economist Mark Parsons, who detailed three possible outlooks on Friday for Alberta’s economy this year.

“We were going to release a March forecast very soon, and we’re kind of going back to the drawing board . . . We’ve got to factor in Iran and what it means for oil prices, what it means for oil and gas investment.”

In early December, ATB projected the Alberta economy would grow by 2.1 per cent and WTI crude prices would average $61 a barrel — similar to last week’s provincial budget’s that was based on oil at $60.50 a barrel.

In a report Friday, ATB noted energy accounted for about three-quarters of Alberta’s international export of goods last year, and 28 per cent of its gross domestic product (GDP).

Parsons laid out three possible scenarios, with one featuring an oil supply shock and limited global economic impact, as prices remain near current levels for a few months and average $75 a barrel for the entire year.

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Energy producers would cautiously increase investment on new growth projects, and GDP would grow between three and 3.5 per cent — the most likely of the three outlooks, he said.

Another scenario would see the crisis fade swiftly, oil return to its previous levels with minimal disruptions to the global economy and Alberta’s GDP expand by about two per cent.

A third outlook would see the global economy decelerate sharply because of a supply shock, with oil averaging $85 a barrel, rising prices affecting industries not tied to energy and GDP growth between 1.5 and 2.5 per cent, “depending on the severity of a global slowdown,” the report stated.

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“We don’t know how long (the war) is going to last, so the ultimate economic impact is going to be around the duration of the conflict and how long these high oil prices persist,” Parsons said Friday.

“The trickier part is figuring out how this hits the real economy . . . How much of this additional cash flow gets recirculated in the economy in the form of higher investment, because that’s what gives you the employment and wage impacts.”

Economists say the old maxim that Alberta will start booming with a return to higher oil prices no longer holds, as the energy industry is less likely than in the past to significantly ratchet up spending to increase production when revenues spike.

Instead, companies have become more focused on remaining financially disciplined and returning excess cash to investors.

“Is $90 a barrel right now going to spur investment? Probably not, because it’s not sustained by higher demand. It’s more by consumers scrambling to find new supply or alternative supply,” Charles St-Arnaud, chief economist with Servus Credit Union, said Friday.

“On the negative side, the headwind is that consumers are going to get hit by higher energy inflation.”

For the provincial treasury, every $1-a-barrel change in WTI oil prices over the course of the budget year alters provincial revenues by $680 million.

Higher energy prices will generate additional government revenues, but when oil briefly surged above US$120 a barrel in 2022 following Russia’s invasion of Ukraine, it didn’t unleash massive investment or an economic boom.

“Much of the value of the oil price rising is seen in the form of higher incomes, rather than higher employment. There are increases in corporate profits, large payouts to shareholders, as we saw then, increases in royalties, so government’s income rises dramatically,” said Trevor Tombe, an economist at the University of Calgary’s School of Public Policy.

“But its effect on the broader economy is much more limited.”

Even before the recent spike in oil prices, Alberta was expected to lead the country with two per cent economic growth in 2026 and in ‘27, according to a report released earlier this week by Signal49 Research, previously known as the Conference Board of Canada.

It projects provincial economies will only modestly expand this year amid ongoing trade uncertainty that has been weighing on investment intentions and consumer spending.

Alberta and Saskatchewan were both projected to lead the country with two per cent GDP growth this year — above the national average of 1.3 per cent — with Wild Rose Country topping all provinces in 2027 with 2.9 per cent expansion.

“For Alberta, there’s still going to be a bit of a hangover from last year where there was a lot of uncertainty,” Richard Forbes, principal economist with Signal49 Research, said in an interview this week.

“That being said, we’re still pretty optimistic of a turnaround coming into next year, and Alberta is going to lead the pack.”

The forecast was based on U.S. benchmark oil prices averaging $57 a barrel, and it was finalized before war in the Middle East broke out last weekend.

“The impact on Canada’s economy becomes larger the longer the disruption brought on by the conflict goes on,” Signal49 Research said in a news release.

“Higher crude oil prices will be inflationary across the country and further pressure consumers, while oil-producing provinces will see an economic boost as reliable sources of oil supply.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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