Short rally fails to change dim oil outlook, raising risks for Alberta finances
Oil ticked up amid geopolitical tension, but major forecasters have trimmed 2026 forecasts. Wider heavy‑light discounts could materially hit Alberta revenue.
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By Torontoer Staff
Oil prices rose on Tuesday as geopolitical tensions involving Iran pushed the U.S. benchmark higher, but that short-term lift has not altered several downward price forecasts for the year. Analysts warn an oversupplied market and the possible return of Venezuelan heavy crude to U.S. Gulf Coast ports will pressure prices and widen the discount on Western Canadian Select.
West Texas Intermediate closed at US$61.15 on Tuesday, up US$1.65, while the U.S. Energy Information Administration and private forecasters published forecasts calling for lower average prices in 2026 and 2027. For Canadian producers and the Alberta government, those projections matter directly for royalties and provincial revenue.
Forecasts point lower despite geopolitical premium
The U.S. Energy Information Administration expects WTI to average US$52 a barrel in 2026, dipping to US$50 in 2027. Enverus, an energy analytics firm, projects Brent will average about US$55 in 2026 and WTI nearer US$50, arguing prices need to reset before any recovery. RBC Capital Markets offers a slightly higher view, forecasting U.S. oil will average US$56 this year.
What’s going to affect the oil prices in 2026, near term, is that we’re getting a bit of a risk premium priced into Brent, over and above fundamentals, due to uncertainty in Iran. So that’s something that’s hanging over the outlook. It’s probably boosting prices $4 or $5 from where we think they should be.
Al Salazar, Enverus director
Enverus also expects a global oversupply of one to two million barrels per day in the first six months of the year, easing in the second half. The firm says market weakness should be concentrated in the first half of 2026, with geopolitical uncertainty temporarily supporting prices above fundamental levels.
Venezuelan heavy crude and the widening light‑heavy discount
Markets have reacted to signs that Venezuelan heavy oil could return to the U.S. Gulf Coast, a development that would compete directly with Canadian heavy crude. Traders pushed the differential between WTI and Western Canadian Select wider in recent weeks on anticipation of Venezuelan barrels arriving.
Data from ATB Capital Markets showed the WTI‑WCS discount at about US$15.70 a barrel on Monday. RBC expects the WCS discount to widen modestly to about US$12.63 a barrel in 2026 and to roughly US$14.63 in 2027, driven in large part by Venezuelan developments.
There has been no evidence of any Venezuelan barrels hitting the Gulf Coast, and it was basically the market acting in anticipation of those barrels landing. And without question, it will widen the light‑heavy differential. It’s just a matter of when and how much.
Al Salazar, Enverus director
The EIA’s outlook assumes U.S. sanctions on Venezuela remain in place through 2027. It notes any policy change that leads to more Venezuelan output than assumed would put further downward pressure on prices.
What this means for Alberta’s budget
Price and differential moves have direct fiscal consequences for Alberta. The province’s fiscal update shows the light‑heavy differential is expected to average about US$11.30 a barrel for the 2025‑26 year, which is US$5.80 a barrel lower than budgeted in February. That gap already reduced expected royalties and revenues.
Alberta Finance says every US$1 a barrel change in the differential over a budget year lowers provincial royalties and revenue by roughly US$740 million. University of Calgary economist Trevor Tombe says the province’s exposure to price swings has grown as more oilsands projects have moved into higher post‑payout royalty rates.
The sensitivity we have today to any given change in oil prices is way, way larger than it used to be. The deficit we might see in February, based on prices and differentials, looks like we’re headed to a deficit in excess of $10 billion.
Trevor Tombe, University of Calgary economist
The finance ministry emphasises uncertainty around Venezuelan supply, and notes growing demand for Alberta oil from Asia, particularly China, as well as additional egress capacity expected to come online in 2026 and beyond. These factors could support WCS prices, the ministry says.
Near‑term risks and what to watch
- Iran‑related geopolitical developments, which are currently adding a near‑term risk premium to Brent and WTI.
- U.S. policy on Venezuela and any increase in Venezuelan heavy crude reaching the Gulf Coast.
- Global supply‑demand balances in the first half of 2026, when analysts expect an oversupply.
- Changes in pipeline and export capacity from Alberta that could shift WCS access to foreign markets.
Producers are watching how long lower prices might persist. Grant Fagerheim, CEO of Whitecap Resources, said he does not expect prices to remain below US$60 for an extended period, but added the market could endure three to nine months of weaker prices.
I don’t believe that oil sticks below $60 for an extended period of time, but we may be dealing with this for, call it, a three‑ to nine‑month period of time of lower prices.
Grant Fagerheim, Whitecap Resources CEO
For now, the market is balancing short‑term geopolitical premium against fundamental oversupply. That combination leaves price forecasts lower than recent spot moves suggest, and it keeps Alberta’s fiscal position sensitive to developments outside the province.
Expect price volatility and a continued focus on Venezuelan exports, Iran tensions, and pipeline capacity as the determinants of oil differentials and provincial revenue in the months ahead.
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