Saskatchewan

Saskatchewan premier keeping eye on falling oil prices

Oil is a big cash generator for the Saskatchewan government, but prices have dropped rapidly in recent weeks and Premier Brad Wall is looking at contingency plans.
The Saskatchewan government budgeted it would receive $1.6 billion in oil revenues this year, but it assumed the price of oil would average about $100 US a barrel. (CBC)

Oil is a big cash generator for the Saskatchewan government, but prices have dropped rapidly in recent weeks and Premier Brad Wall is looking at contingency plans.

On Friday, the price of a barrel of West Texas Intermediate Crude was around $84 US, about $16 lower than what the government had been projecting in the spring.

That matters because in the budget, the province used the $100-a-barrel benchmark to predict it would take in $1.6  billion in oil revenues.

Wall said the price of oil goes up and down, but if there's a long term slide, the province will have to cut spending.

"You won't see a specific, large item account for whatever efficiencies we need to find," Wall said. "But what you will see ... is across-the-board efficiencies we can find. I might ask ministries for a half of per cent or a per cent and that adds up to significant savings on an $11-billion budget."

According to provincial officials, each $1 drop in the price of oil translates roughly into a $19 million loss to the treasury over the course of year.  So if the average price for the fiscal year ended up $16 below the original projection, that would mean loss of more than $300 million.

Cushioning that impact is the fact that province gains about $34 million for every U.S. penny drop in the value of the Canadian dollar — and the dollar is currently below earlier projections.

Wall said he's directed Finance Minister Ken Krawetz to develop contingency plans for further oil price drops, but adds the province isn't anywhere near the point where it would have to implement them.

He noted that if oil revenues are off right now, corporate income tax revenues are somewhere higher than expected and potash prices are currently strong.

"We'll balance the budget," Wall said.

CHART: Gasoline versus oil prices

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