Rock-bottom Prices of Canadian Crude Trigger Budget Cuts

Canadian Prime Minister Alison Redford announced that Alberta’s 2013 earnings will dip by $5.98 billion USD from year-ago figures.  Alberta is the seat of Canada’s oil and gas sector, so the continuing trend of dismal crude oil prices, specifically that of Canadian heavy crude, will trigger a corresponding decline in its earnings.

During a televised national address, Redford said that Alberta must limit expenditures and implement budget cuts on local projects, particularly those that are no longer deemed feasible.

About 30 percent of Alberta’s earnings are derived from royalties and taxes paid by the energy sector. Just a year ago, Western Canada Select (WCS), the country’s benchmark crude, fetched an average crude oil price per barrel of $71.80.  But during the past few months, prices of WCS saw a 35 percent decline.  There’s a growing price disparity between WCS and global oil prices, and this has prompted the Canadian government to take up measures that will help narrow the gap.

Redford said that U.S.’ efforts to step up its domestic oil output is hurting Canada’s oil sector as the U.S. is Alberta’s biggest market for Canadian oil.  Consequently, Alberta has turned to the domestic market, where it is forced to sell the commodity at a meager price of C$50.

Lately, Canadian oil price trends are failing to show any sign of recovery.  As a result, Alberta experienced losses last year amounting to C$1 billion.  This, year projected loss could reach as high as C$6 billion.

The Premier’s pronouncements about Alberta’s budget cuts were quite broad, but the specifics of the budget plan will be published in March.  She did reveal, however, that this year’s C$6 billion loss forecast is about the same amount spent by Alberta on education and related programs.

She went on to remind Alberta to search for new foreign markets for its crude oil in order to lessen the blows arising from fluctuations in crude oil price per barrel.

Meanwhile, Doug Horner, Finance Minister of Alberta, said that its budget plan and outlook for 2013 is going to be somewhat bleak, and that expenditures will have to be curbed for the rest of the year.

Nonetheless, he mentioned that Alberta is enjoying an AAA rating and that it will bank on this status to obtain additional loans at preferential rates.  It also intends to draw from its sustainability fund, apparently to cover losses from selling domestic oil at rock-bottom prices.