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Varcoe: 'Double-edged sword': Oil prices near $100 this year sting consumers, bolster bottom line for western provinces

'On the one hand ... it generates so much value for our economy,' Premier Danielle Smith said. 'It goes both ways. Higher prices are bad for consumers and they're bad for business investment'

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As global oil prices accelerate into high levels, a new study says they’re also shifting gears — expected to average US$95 a barrel for Brent crude for the rest of 2026 — and that will have major implications for Canada’s two largest oil-producing provinces.

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For the governments of Alberta and Saskatchewan, it would make a seismic difference to the bottom lines of just-released budgets and spur the industry to hike output, but also hit consumers in the pocketbook with higher energy costs.

“We could all agree that we are living in an uncertain world, and a month can change everything,” Saskatchewan Premier Scott Moe said in an interview Tuesday.

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“The question I would have as a government is how stable is that price moving forward through the next 12 months . . . There may be some positives on the bottom line of budgets, which is a good thing, because all provinces are struggling with some deficits this year, but it will have a negative effect on families.”

There’s a similar sentiment in Alberta.

“It’s a double-edged sword because, on the one hand . . . it generates so much value for our economy,” Premier Danielle Smith said in an interview.

“It goes both ways. Higher prices are bad for consumers and they’re bad for business investment.”

On Tuesday, energy analytics firm Enverus released a new oil outlook that sharply increases its price forecast for the global benchmark Brent crude, projecting it will average US$95 a barrel for the rest of this year amid the war in the Middle East and its effect on drawing down global inventories.

For next year, it foresees Brent averaging $100 a barrel (with U.S. benchmark West Texas Intermediate prices about $5 less) as the implications linger on moving oil out of the Strait of Hormuz, if the pivotal waterway in the Persian Gulf is closed for three months.

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On Tuesday, prices for WTI crude rose more than $4 a barrel to close at $92.35, while Brent crude closed above $104 a barrel.

According to Enverus, every month that the strait is effectively closed to tanker traffic — it typically sees more than 20 million barrels of oil and product transit through it each day — changes its oil price outlook by $10 to $15 a barrel.

Al Salazar, Enverus vice-president of intelligence, said it will take time for countries in the region to bring idled production back online, even if the war ends quickly.

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He estimates around 10 million barrels per day (bpd) of production is currently being disrupted, and that OECD oil inventories will be down between 300 and 500 million barrels of crude and product stocks, assuming the crisis extends for three months. Higher costs to transport oil through the straits and a geopolitical risk premium will also linger.

“The damage has already been done,” Salazar said.

“Once the flow problem has been solved, we have a low stock problem that suggests we should be at least in $100 oil again.”

Other energy analysts have also raised their outlook recently as the war continues. On Monday, Goldman Sachs increased its 2026 price forecast for Brent crude to $85 a barrel, and to $79 for WTI oil.

In Canada, rising prices will increase cash flow levels for producers, and revenues for oil-producing provinces such as Alberta and Saskatchewan.

Last week, Saskatchewan released its new budget forecasting an $819-million deficit.

Saskatchewan’s fiscal blueprint forecast WTI oil prices will average just US$59.75 a barrel in the 2026-27 budget year, slightly below Alberta’s projection.

However, as RBC Economics pointed out in a report, Saskatchewan’s economic assumptions “look conservative in light of the recent spike in oil prices, offering material revenue upside.”

Every $1-per-barrel change in oil prices over the course of the budget year would alter Saskatchewan revenues by $16 million; crude prices above $70 a barrel would slice the expected deficit by 20 per cent.

Saskatchewan expects oil output to top 450,000 barrels per day (bpd) and the province has a target of ramping that up to 600,000 bpd by the end of this decade, Moe noted.

“We have our price on oil . . . It’s going to change and fluctuate, likely for the foreseeable future. If it’s up, we’re going to do better on our budget line,” he said.

“It’s going to be what it’s going to be. No government controls the oil price, and we’ll make those adjustments as we find our way through.”

Given the rapid shift in oil prices since the start of the Middle East conflict, Canadian producers have not announced changes to their capital expenditure programs for 2026.

“No one is rushing to evaluate growth at these sort of levels, because the price is pretty unstable,” said Tristan Goodman, president of the Explorers and Producers Association of Canada.

Canadian Association of Energy Contractors president Mark Scholz said his members, which include drilling companies, saw activity slow during the first two months of this year than during the same period in 2025.

Any changes to drilling programs would likely begin with more activity by junior producers in the second half of the year, he said.

In Alberta, which produced an average of 4.1 million bpd last year, the effect of rising prices is even more pronounced than on Saskatchewan’s bottom line. Every $1 change in the average price of WTI oil over the course of the budget year alters Alberta’s revenues by $680 million.

“Up until we released our budget, we were still planning on the long-term price of oil being $68,” Smith said, noting a supply response usually brings oil prices back down when prices spike.

“We’re just going to continue on in trying to find a pathway to balance our budget that would be anticipating a long-term price of WTI in the $60 to $65 range . . . and things can change very quickly, as we’ve all seen.”

Chris Varcoe is a Calgary Herald columnist.

cvarcoe@postmedia.com

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