Lower-than-anticipated oil prices put Sask.'s budgeted revenues at risk

Oil prices have been trending downward since the start of this year, from $80.04 US/ barrel in January to as low as $58.07 US/ barrel last week. That puts millions of dollars of Saskatchewan oil revenues in jeopardy.

Saskatchewan projected its oil revenue in the province's March budget based on an average price of $71 US a barrel. Since then, oil prices have hit or surpassed that number only twice. 

Oil and natural gas revenue were budgeted to make up for 5.1 per cent of the total money coming in for the province. The budget says each $1 difference from that $71 mark costs the province $17.9 million dollars in oil revenue.

As of Monday, this year's fiscal average was $62.23 US per barrel. As per the budget, that's more than $156 million less in estimated revenue coming into Saskatchewan. 

Keith Willoughby, dean of Edwards School of Business at the University of Saskatchewan, said these numbers could be early warning signs for the province. 

"This is an $18-million [per dollar] headache for the government of Saskatchewan," he said. "That's a considerable impact on the provincial budgetary landscape."

It's only been a little over a month since the fiscal year began, and present estimates could change if prices increase or decrease over the year. Willoughby said it's a little early to toss the budget out completely, given that increased summer driving could potentially push the prices of gasoline and oil upwards.

"If we were to maintain a $71-a-barrel price for oil, we'd have to have prices close to $80-a-barrel for the next several months. So to me it will be important to identify what happens over the next one to two months," Willoughby said. 

Joe Calnan, vice-president of energy and Calgary operations at the Canadian Global Affairs Institute, said a weaker-than-expected demand and a higher-than-expected production is causing the prices to drive down.

"I'm trying to keep a handle on the whole thing, but, very interesting time to be watching the oil market," Calnan said.

OPEC+, a group of major oil-exporting nations, has loosened supply constraints to bring more oil onto the market. Calnan said that move accelerated oil supply, while the trade dispute between US and China compounded the issue by lowering demand.

"We're seeing quite a bit more oil coming on to the market far sooner than anticipated, and this hasn't come at the perfect time, as we are now seeing probably expectations of lower demand," he said.

The average per-barrel price for the last fiscal year was $74.38 US. Willoughby said it would've been tricky for the province to have anticipated an accurate per-barrel price in tumultuous times where governments are left navigating tariffs, OPEC+ decisions and trade policies coming out of the White House.

"It might have been challenging for the government to anticipate, maybe, the impact of the tariff turbulence and some of the softening of demand we're seeing. These situations are always better viewed in hindsight."

Willoughby said it might be important for the government to send out communication to Saskatchewan residents about revised estimates and how they'll impact people.

The province's projected a razor-thin surplus of $12.1 million, but it didn't factor in any fallout from American or Chinese tariffs, including a 100 per cent tariff on canola imports.

Saskatchewan's approach was a departure from budgets in Alberta and B.C., which each featured dedicated contingency funds of $4 billion. Instead, the province banked on a strong financial outlook and "responsible" spending to weather the impacts of tariffs.

Willoughby said the decision to not have a contingency could prove detrimental. 

"We went into the situation with no backup goalie. There was no safety net, there was no limited contingency plan. So it's sort of, like, now our first string goalie got injured and so now we are dealing with some of the repercussions."

Saskatchewan's Ministry of Finance, in an emailed response, said the provincial budget oil price forecast is established using "a multitude of expert private sector oil price forecasts at the time the budget is finalized, typically around mid-February."

"As we are just over a month into the fiscal year, it is too early to know what the impact of the change in oil prices is going to be. It is common for the oil price to fluctuate up and down over the course of a year," the ministry said.