A windfall for government and a pain for consumers; the winners and losers of higher oil prices

Oil prices have been climbing to their highest levels in years, and while governments are hoping to cash in on rising royalty revenues, consumers are feeling the pinch with higher energy and transportation costs.

Oil prices have reached a 3 year high — a gusher of revenues for government and energy companies

Gasbuddy says the average price for regular gasoline in Calgary is $1.27 per litre, this station on 14 St. NW was ten cents higher on Wednesday, May 16 2018. (Bryan Labby/CBC)

Oil prices haven't been this high since late 2014 — a gusher of revenues for government and Canada's big energy companies, but consumers are feeling the pinch.

West Texas Intermediate has been hovering slightly above $70 US per barrel for more than a week, and even Western Canada Select, the Canadian heavy oil benchmark, climbed into the mid- to upper-$50s US.

What does it mean for Alberta's debt and deficit? 

The NDP government forecast $59 dollars a barrel for WTI in this year's budget. It also forecast an $8.8 billion deficit.  

The price of West Texas Intermediate closed at $71.50 Wednesday, the highest price in more than three years. (Todd Korol/Reuters)

A $1 increase per barrel — sustained over the course of a year — would pump an extra $265 million into government coffers. If prices average $70 US per barrel this fiscal year — the windfall could amount to $2.9 billion. But that comes with a heavy dose of caution.

"We are only six weeks into the fiscal year and we will not speculate on oil prices or our forecasts at this point," said Mike Brown, press secretary to Finance Minister Joe Ceci.

If any adjustments are made to the government's WTI price forecast, it won't happen until sometime in August when Ceci provides the fiscal year's first quarterly update.

Sunny days for Suncor, Cenovus

Share prices for many of Canada's energy giants are riding the wave. Suncor, Cenovus, Encana, Canadian Natural Resources, Husky Energy and Pembina Pipeline are enjoying some of their highest — if not their highest share prices in a year.

Thanks to rising oil prices, earnings and share prices are on the rise for some of Canada's big energy companies.

Many of those companies are also reporting higher earnings, which could translate into more capital spending — and you guessed it, more jobs.

"The biggest winners, I'd say it's a tie between energy producers themselves … and the provincial government because the government derives a lot of royalty revenue from oil and gas," said Todd Hirsch, chief economist at ATB Financial.

Hirsch says the government is benefiting from the higher oil prices as royalty revenues flow through immediately — but we won't know the details until the quarterly update.

As for more money being spent in the oilpatch, Hirsch predicts companies will wait for more certainty around pipelines before announcing millions or even billions in ramped up spending. He says a positive decision on Kinder Morgan's Trans Mountain pipeline will be a key signal for companies who are looking for confidence that their projects won't get "stranded."

'It is annoying'

Gas prices have pretty much followed the same trajectory as crude oil prices.  According to Gasbuddy, the average price for regular gas is 125.7 per litre — that's down about five cents a litre from earlier this month.

Clockwise from top left, Ben Pitka, Mackenzie Bedford, Yonas Tefera and Ian Piwek don't like to see rising gasoline prices, but there's not much they can do about it. According to gasbuddy.com, regular gas prices in Calgary are hovering around $1.27 per litre. (Bryan Labby/CBC)

"I just spent 50 bucks on gas and that didn't even fill it up," said Mackenzie Bedford.  "It is annoying," she added. 

"I can barely afford it and hopefully it's not going to go up again, hopefully it will stay like this," said Yonas Tefera who was filling up at the same gas station in northwest Calgary. 

"It's costing $10 to $15 more to fill up my tank, but I'm fortunate I have a job that I can afford that I guess," said Ben Pitka.

Consumers are the losers

"Consumers, obviously, almost all of us use energy, if it's fuelling up gas in our car, or even transportation of things we purchase," said Hirsch.

Todd Hirsch, chief economist at ATB Financial, says there are winners and losers when it comes to higher oil prices, but the benefits to Alberta far outweigh the costs. (Bryan Labby/CBC)

Hirsch said the implications for higher oil prices are far-reaching. We notice it most when we fill up, but shipping costs will also increase — along with airline tickets.

The consumer price index rose 2.3 per cent last month compared to April 2017.  Energy costs led the way with a 16 per cent jump, followed by transportation costs at almost 6 per cent. 

More riding the bus

Calgary Transit can't explain the reason, but ridership levels increased 4.7% last month and it could be tied to higher gasoline prices.  

Calgary Transit says ridership was up slightly in April, one of the reasons may be the increase in gasoline prices. (CBC)

A statement from the city said:  "Higher gas prices will encourage some people to use transit more or even switch to using transit to make their trips."  

While ridership rose last month, Calgary Transit also has to contend with higher fuel prices of its own  — but those numbers are still being calculated.

Higher jet fuel prices 

WestJet and Air Canada are not immune from the impact of higher oil prices — jet fuel prices have been steadily climbing since 2014. 

It may have some travellers fearing a return of the fuel surcharge — something the airlines introduced a decade ago to combat rising costs.

In a statement, WestJet said it continually reviews fares based on many factors, including changes to costs. 

"At this point, we do not have plans to implement a fuel surcharge.  Although we have raised fares several times this year, our average fare per mile flown increased by just 0.3 per cent in Q1 2018, and we continue to offer more than one million seats with base fares under $100," the company said.

WestJet brought in a fuel surcharge for five months in 2008. It ranged in price from $20 to $45 depending on the flight.

Westjet says it has no plans to bring in a fuel surcharge, while Air Canada rolled in the fuel surcharge into its North American base fares in 2008. The airline would only say there is currently no separate fuel surcharge.

Air Canada said it does not comment on the future direction of fares — but said in a statement to CBC News: "At the end of the day our aim is to be competitive with other airlines offering comparable services in each market where we operate," the company said.

Air Canada incorporated fuel surcharges into its base fares for North American travel in 2008 and would only say there is no separate fuel surcharge. 

Despite higher costs for many consumers, Todd Hirsch says for Albertans the benefits are much greater than any of the costs.

"Alberta is an energy exporter, undeniably the benefits to Alberta outweigh the costs, there are those who are going to win and lose but overall there's no question Alberta is going to benefit from higher oil prices," he said.

Back at the gas station, Ian Piwek says there's not much anyone can do about it and chalks it up to the cost of living.

"It is what it is," he said while filling up his pick-up truck.


Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at bryan.labby@cbc.ca or on Twitter at @CBCBryan.

About the Author

Bryan Labby

Enterprise reporter

Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at bryan.labby@cbc.ca or on Twitter at @CBCBryan.