Just a month ago, Alberta’s finance ministry announced a budget featuring annual deficits for three years in a row on the back of low oil prices. Now, Canadian crude oil producers are set to “benefit disproportionately” from the war in the Middle East thanks to the fact that Canadian crude prices follow WTI closely—and WTI is spiking.
When Minister Nate Horner presented the budget for Canada’s oil province, he said expectations were that oil prices would bottom out this year and start rising in 2027. Little could Horner know that the price of $60.50 per barrel of WTI that was used in the budget projections would go all the way up to over $90 per barrel, providing Alberta—and by extension Canada as a whole—with a windfall.
“We are a massive net exporter of oil and products. Western Canada is going to benefit. You’re going to see a boost in royalty revenues,” another analyst, Rory Johnston from Commodity Context, said, quoted by CBC. Indeed, if the oil price rally could erase the projected deficit for Alberta and turn it into a surplus.
“$90 a barrel over the course of the year would be sufficient to wipe out, and probably turn into a surplus, what was going to be a $10-billion deficit,” Tyler Meredith, former economic adviser to Canada’s prime minister, said. Even the planned OECD release by members of the International Energy Agency is unlikely to reverse the price trend, Meredith noted, and he is not alone.
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IEA members agreed earlier this week to release up to 400 million barrels of crude from their emergency reserve. Canada will be one of the contributors to the release. Initially, the news that a sizable release was being discussed pressured prices as traders sold oil in anticipation of the additional supply. Later, however, reason re-emerged, with the market realizing 400 million barrels will not do much for the supply crunch if the Strait of Hormuz remains frozen for longer. As a result, after their dip earlier in the week, oil prices are on the climb again.
Canadian oil-producing companies, meanwhile, are enjoying analyst stock price forecast revisions. One analyst from Veritas Investment Research told Bloomberg that Cenovus and Canadian Natural Resources were especially well placed to benefit from the situation, which was why the firm raised the valuations of both by as much as 30%.
Generally speaking, companies with both upstream and downstream operations are in a better position than pure-play ones because they stand to benefit from both higher and lower oil prices. If the rally reverses anytime soon, those with downstream operations would benefit from cheaper feedstocks. If the rally continues, upstream becomes the most important business, exposing companies to that windfall the media is talking about.
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In the meantime, the oil that Canada promised to contribute to the IEA joint emergency release has to come from somewhere, and the country does not maintain a strategic reserve like its southern neighbor, the U.S. As a result, the federal government is considering its options.
“We can delay taking downtime, for example,” Energy Minister Tim Hodgson told the media this week. “We can, for brief periods of time, peak production, which we’re talking to suppliers about doing. We can ask refineries that are using imported oil to use more domestic oil.”
Oil inventories in western Canada stand at around 23.3 million barrels right now, according to Kpler data cited by Bloomberg. As fate would have it, producers were in the process of building inventories ahead of the start of maintenance season. Now, some of those inventories would be released to the IEA, while producers ramp up output and enjoy their windfall.
By Irina Slav for Oilprice.com
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