How Will Alberta Deal With Low Oil Prices in Next Week’s Budget?

From: Lennie Kaplan
To: Alberta budget observers 
Date: February 20, 2026
Re:  How Will Alberta Deal With Low Oil Prices in Next Week’s Budget?

The Alberta government is signaling that its 2026 budget next week is going “stay the course” with a large deficit number in 2026/27, and likely into 2027/28.

One of the critical factors influencing the course of the province’s future finances is the budget’s projection of crude oil prices over the next three fiscal years.

According to my latest survey of forecasts by national agencies, banks and investment dealers, and industry analysts, West Texas Intermediate (WTI) benchmark prices are now expected to average $60.50 US per barrel in 2026/27, $65.50 in 2027/28, and $67.00 in 2028/29.

This is far lower than the Budget 2025 projection of $71.00 per barrel for 2026/27 and $71.50 for 2027/28. Each dollar decline in WTI prices reduced Alberta’s total revenues by at least $750 million annually in 2025/26, and likely even more in 2026/27, 2027/28, and 2028/29.

Any government projection that goes well beyond the average of private sector forecasters, particularly the $67.00 US per barrel forecast in 2028/29, would suggest the government is injecting too much political optimism and too little prudence into its oil price forecasts.

The WTI crude price is not the only factor in calculating the government’s revenue. The gap between the WTI price and the Alberta price has been narrower than initially anticipated. Differential estimates are now projected at $13.00 per barrel in 2026/27, $13.30 in 2027/28, and $13.40 in 2028/29, by the average of private sector forecasts. In Budget 2025, the differential was estimated at $16.50 in 2026/27 and $15.60 in 2027/28.   

As a result of these revised WTI crude oil price and WTI-WCS differential forecasts, Alberta’s overall fiscal shortfalls for 2026/27, 2027/28 and 2028/29, assuming operating expenses initially grow at the combined annual rate of inflation and population (or about 3.6 percent per year) are estimated at $10.6 billion, $8.6 billion, and $7.9 billion, respectively, which put them offside the legislated fiscal framework. These shortfalls don’t take account any reductions to the budgeted total expense base to get down to the allowable deficit as defined in the fiscal framework.

The Alberta government cannot run a budget beyond three consecutive fiscal years and is required by its fiscal framework to prepare a consolidated three-year plan in Budget 2026, including 2028/29 forecasts that show a balanced budget in that year. However, if the Alberta government decides to suspend these applicable portions of the current fiscal framework at some point going forward, the rules for allowable deficits may be circumvented.

The government’s decision to adopt the recommendations of the 2019 MacKinnon panel to provide alternative fiscal and economic scenarios to assess key fiscal and economic risks and offer a formal analysis of Alberta’s exposure to external factors were good first steps. 

However, it can still do better by expanding its budget stress testing in the Budget 2026 documents, and beyond.

I propose four additional recommendations for improving the government’s revenue forecasting systems:

• The government should prepare and publicly release a formal, comprehensive, and annual budget stress test report in its budget documents.
• The annual budget stress test report should examine a range of budget scenarios, including low revenue, high revenue, energy transition policies, its net-zero emission commitments, US tariffs, Alberta separation or independence, and global recession scenarios.
• It should examine the impact of each scenario on major revenues by source, major expenses by function, overall surplus/(deficit), net financial assets/(debt), and fiscal and capital plan debt.
• The requirement for the preparation and public release of a comprehensive annual budget stress test report should be legislated into Alberta’s fiscal framework.

These four additional steps will enhance the credibility of Alberta’s revenue forecasting system even as the government faces the prospects of multi-billion budget deficits in both 2026/27 and 2027/28.

Lennie Kaplan is a former senior manager in the fiscal and economic policy division of Alberta’s Ministry of Treasury Board and Finance and served as executive director to the 2019 MacKinnon Panel on Alberta’s finances.

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The views expressed here are those of the author. The C.D. Howe Institute does not take corporate positions on policy matters.