Brent crude futures are trading at US$110.70 a barrel, near their highest level since May, CNBC reported, as shipping attacks near the Strait of Hormuz keep prices up. The expiring November contract for West Texas Intermediate, the U.S. benchmark, was at US$105.75, after touching US$110.48 earlier in the session. Alberta's first-quarter fiscal update assumes WTI will average US$73.50 for the 2026-27 fiscal year.
The gap between those two prices is large, delivering a substantial $2 billion surplus to Edmonton. Danielle Smith's government needs to exercise prudence and steer this windfall towards debt reduction and savings, and avoid increases to permanent programs.
Shiptracker Kpler said at least 18 vessels were reportedly attacked over two weeks in the Strait of Hormuz, according to Reuters. The Islamic Revolutionary Guard Corps, the branch of Iran's armed forces that runs its navy in the Gulf, said its mines set two "violating oil tankers" ablaze at an "illegal crossing point," AFP reported. The tankers have not been independently named. Yemen's Houthis also claimed strikes on Saudi energy sites, though Reuters said it could not verify them.
Part of today's price is insurance. ING analysts wrote that the market "is pricing in a significant risk premium." A risk premium is the extra amount buyers pay to protect themselves against future supply cuts, so it can shrink quickly if the cut never comes.
The province forecasts royalty income from an assumed average oil price. When the actual price runs above that assumption, royalties rise with it. Higher royalties then produce windfall surpluses.
That has already happened once this year. WTI averaged US$93.00 in the first three months of Alberta's fiscal year, the update shows. The province lifted its assumption from US$60.50 in Budget 2026. It turned a $9.4-billion projected deficit into a $2.0-billion surplus, mainly on $9.7 billion more resource revenue than budgeted.
One reason the update stopped at US$73.50, when the quarter averaged far more, may be that Edmonton expects the war premium to fade within the fiscal year. The same caution can govern how the windfall is spent. If the extra revenue is temporary, it can safely finance spending that ends, such as paying down debt and topping up savings. A new program carries a cost that continues after the price that paid for it has fallen.
The case for booking the revenue as permanent is that the premium is here to stay. Supply is clearly tight. A futures price shows what traders will pay today for oil delivered soon, but it cannot show the average a province will collect over a full year. The same ING note said the premium "would likely erode slowly" if crude keeps flowing. U.S. Energy Secretary Chris Wright said Gulf flows have recovered to about 80 per cent of their pre-war level, Euronews reported.
For the rest of the country, the gap shows up at the pump before it shows up in any treasury. Gasoline prices rose 27.8 per cent from a year earlier in September, Statistics Canada reports. Dearer crude raises refinery costs. Refiners pass the cost to retailers. Retailers pass it to drivers, and the consumer price index rises with them.
The Bank of Canada is likely to read today's price as another reason for wariness. Governor Tiff Macklem said that with shipments curtailed, "the risk that inflation broadens and becomes more persistent has gone up," the Financial Post reported. Having said that, the governor probably has little room to dismiss a further jump in crude.
Congratulations, Alberta, on the surplus; save it wisely.
