A rebound in production paired with a rise in world oil prices has an Alberta economist estimating that the value of the province’s oil production has returned to pre-pandemic levels.
The projection comes just days ahead of Finance Minister Travis Toews tabling his 2021 budget.
“They have a better starting point in terms of revenues for fiscal year 2021, and probably also a smaller deficit than they would have expected only six months ago,” Alberta central chief economist Charles St-Arnaud told Global News.
In his projection, St-Arnaud estimates oil production volume in January was around the level experienced at the onset of the COVID-19 pandemic, while the price for Western Canadian Select averaged US$38.40 per barrel for the month, putting the value of production at around CAN$5.6 billion. This marks a major turnaround for the industry, which saw prices plummet into negative territory last spring.
“We, at one point, had about six rigs working in all of Western Canada in some parts of June,” said Mark Scholz, the president of the Canadian Association of Oilwell Drilling Contractors.
But in October, some optimism around COVID-19 vaccine development began to take hold, demand started to inch up, and with it, so did activity in Canada’s oil patch.
“Q4 2020 turned out to be about 20 per cent higher than we originally forecasted,” Scholz said. “Q1 is actually turning out to be anywhere between 35 to 40 per cent higher activity we had originally forecast.”
Toews is, of course, watching all of this very closely. In his mid-year fiscal update in November, he forecast the deficit for the upcoming budget to be about $15.5 billion, and the price of oil to average US$45 per barrel. West Texas Intermediate closed above US$61 Monday. The finance minister indicated he views that as a reflection of global supply more than demand, and isn’t prepared to declare smooth sailing ahead.
“With all the economic uncertainty, I’m very pleased to see this increase in energy prices, but we’re taking a much more conservative and prudent view,” he said.
Toews will table the 2021 Alberta provincial budget on Thursday.
Watch below: (From Nov. 24, 2020) Alberta’s UCP government projects GDP won’t return to 2019 levels until 2023, as the deficit still tops $24-billion. Tom Vernon has the details from the November 24, 2020 fiscal update.