The province of Alberta better have a backup plan if its financial future is dependent on oil averaging US$68 by 2020, experts say.
Oil has had a rough-and-tumble few years, hitting a low of $26 a barrel in January 2016. It’s slowly recovered since then, hovering around $50 in the last few months, but that’s still a far cry from the $93 a barrel it averaged until 2014.
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Alberta appears to be taking a cautious yet optimistic approach, said Colin Cieszynski, chief market strategist at CMC Markets Canada.
“It is the case where they probably need to have a few things go their way, a few things to go right after three years of everything going wrong,” he said.
The province has acknowledged it’s a gamble.
“Substantial risks remain,” the government’s budget analysis warned. “Weaker-than-forecast global growth would harm Alberta’s revenue forecast, as oil prices would remain lower for longer.”
The province is projecting a substantial deficit over the next few years, which will bring its debt load to $71.1 billion by 2020.
FULL COVERAGE: 2017 Alberta budget
In a statement following Thursday’s budget release, Wildrose Leader Brian Jean called the NDP plan another of the party’s “economic experiments.”
“They simply are not realistic,” Jean said. “Some of the increases in our commodity prices that they expect to have over the next three to four years are, in my opinion, just hopeful thinking.”
Alberta Party Leader Greg Clark said the NDP is playing a “game” with its budget.
“I guess they’re just trying to get to 2019, crossing their fingers and hoping oil goes up,” Clark said.
When it comes down to it, the oil-dependent province needed to choose a number, Cieszynski said. Projecting an average in the $60s is at the high end but “probably reasonable,” he noted, adding that $80 to $100 a barrel would be too aggressive a forecast.
“At the end of the day, they have to just pick something and kind of go with it, and be prepared to deal with what happens if it’s a little higher, or what happens if it’s a little lower,” Cieszynski said.
Budgets are always a projection, said Ian Lee, associate professor at the Sprott School of Business at Carleton University.
While oil prices are volatile, there are people all around the world tracking and studying its consumption and supply levels. And even as renewable energies become more popular, oil still largely fuels the globe.
“It’s actually very steady,” Lee said.
Lee also predicts oil to average in the mid-$60s per barrel range by 2020.
“It’s not wild-eyed or radical of them to come in with that number,” Lee said. “I thought it was a reasonable judgment or forecast of the price of oil in the near future.”
The province is treading in an environment where “there’s always a lot of ‘ifs,'” Cieszynski added.
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“One would hope that they’ve also got some sort of plan in case that average ends up being more like $58 instead of $68,” he said.
A government always needs to be flexible when it comes to its financial plans, Lee pointed out.
“You don’t want a government to become so rigidly attached to its budget that it’s not willing to change course when circumstances dictate,” he said.
— With files from Global News reporter Erika Tucker and The Canadian Press
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