\nArticle content<\/h2>\n Higher oil revenues as well as the availability of COVID-19 vaccines and stimulus spending in the U.S. lead to a \u201cstronger and more secure outlook\u201d in Canada and point toward strength in the Canadian dollar, Deutsche Bank commodities and foreign exchange strategist Michael Hsueh said in a Monday research note.<\/p>\n<\/p>\n\n Alberta releases a pandemic budget, with money for COVID-19 and economic recovery <\/span><\/h3>\n<\/li>\n Time for a sales tax? As Alberta deficit grows, so do calls to diversify oil-dependent economy <\/span><\/h3>\n<\/li>\n<\/ol>\n<\/section>\nAlberta, Canada\u2019s largest oil producing province, has budgeted for the year under the assumption of much lower oil prices, so higher oil prices could buoy the province\u2019s financial situation. The budget assumes the WTI benchmark would average US$46 per barrel and WCS blends would average $40.70 per barrel,\u00a0 resulting in an $18.2-billion deficit.<\/p>\n
But even in Alberta government\u2019s high oil price scenario of US$55.50 per barrel this year rising to US$64.50 per barrel in 2023\/2024, the province is still looking at a $3.4-billion budget deficit at the end of its forecast period in 2023, which University of Calgary economist Trevor Tombe said is an indication that there are structural problems in the budget as Alberta is relying on a quarter of the budget\u2019s revenues to come from resource royalties.<\/p>\n
\u201cA $1 change has an impact on the overall budget balance of $230 million and that includes more than just the resource royalties themselves. It also includes the other implications of an oil price change on corporate incomes taxes and other revenue items as well,\u201d Tombe said.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n However, the relationship between oil prices and the Alberta government\u2019s revenues do not move in a straight line.<\/p>\n
\u201cA $10 change is not ten-times a $1 change,\u201d Tombe said, because large upswings in oil prices trigger events like major oilsands projects repaying their capital costs earlier than expected, which in turn leads to incrementally higher revenues.<\/p>\n
In addition, higher oil prices encourage producers to drill new wells, employ more Albertans, and also increase the total volume of oil produced in the province, said Charles St-Arnaud, chief economist at Alberta Central, a financial services firm.<\/p>\nSt-Arnaud said he doesn\u2019t expect the recent uptick in oil prices will necessarily lead companies to drill new wells or greenlight new projects this year because many have promised capital discipline and have pledged to pay down debt that had piled up during the depths of the 2020 oil price crash and COVID-19 outbreak.<\/p>\n
\u201cWith oil where it is right now and what we\u2019ve seen over the past few months, the very, extremely negative scenario that most were contemplating last summer when oil prices were US$30 per barrel isn\u2019t happening, but it doesn\u2019t mean that oil companies will start to rehire quickly,\u201d St-Arnaud said.<\/p>\n
\u201cI think a lot of them have taken on a lot of debt last year to keep operations going. So they\u2019re probably going to move at the moment to, \u2018Let\u2019s repay, let\u2019s repair our balance sheet to put ourselves in a better position in the future,\u2019\u201d he said.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n Alberta\u2019s unemployment rate is expected to hover around 9.5 per cent this year, among the highest in the country, but lower than the 11.5 per cent unemployment rate in 2020, according to TD Bank Group.<\/p>\n
Still, moods can change pretty quickly if the oil price is sustained, with BMO Capital Markets expecting Alberta to lead the country\u2019s GDP growth table this year.<\/p>\n
\u201cAfter a brutal first half last year, the resource sector has seen output surge at a 24 per cent annualized clip in the past six months. And with oil now north of US$60, we expect Alberta to lead the nation with 6.5 per cent GDP growth this year, and that may well be a cautious call,\u201d wrote Douglas Porter, chief economist at BMO Capital Markets said in a note earlier this month.<\/p>\n
\nThe very, extremely negative scenario that most were contemplating last summer when oil prices were US$30 per barrel isn\u2019t happening<\/p>\n<\/blockquote>\n
The province\u2019s three largest oil producers Canadian Natural Resources Ltd., Suncor Energy Inc. and Cenovus Energy Inc. have said their priority this year would be focused on paying down debt and paying shareholders rather than drilling or building new facilities to grow production.<\/p>\n
Suncor president and CEO Mark Little said on his company\u2019s fourth quarter conference call on Feb. 4 that his company would not ramp up spending this year in response to oil prices. \u201cI can assure you that we will not increase our 2021 capital guidance above our current range,\u201d Little said, and repeated it on the call for effect.<\/p>\n
Suncor said it would repay between $1 billion and $1.5 billion in debt this year, while Canadian Natural has implemented a new debt target of $15 billion compared with current long-term debt of $20 billion and has said it could reach its goal this year.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n At current oil prices, analysts believe all three producers could generate billions in additional cash flow this year after expenses.<\/p>\n
Stifel FirstEnergy analyst Robert Fitzmartyn pegged CNRL\u2019s free cash flow potential this year at $7.8 billion in a March 4 research note, which he called a \u201cleading\u201d position in the industry.<\/p>\n
Despite expectations for higher cash flow this year, most forecasts show spending levels in the oilpatch will not rise sharply from 2020.<\/p>\n
Investment in conventional oil and gas will rise 8 per cent to $16.7 billion over the course of 2021, up from a low point of $15.3 billion last year, while oilsands spending will jump 17 per to roughly $7.7 billion this year, from a low of $6.5 billion last year, the ARC Energy Research Institute forecast on Monday.<\/p>\n
Spending is expected to be well below 2019 levels, when producers spent $25.8 billion in conventional oil and gas and $9.3 billion in the oilsands, according to the institute.<\/p>\n
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