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Province’s oil estimates unrealistically high in budget: analyst

Mar 19, 2015 | 5:32 PM

The province is being too ambitious with its oil price assumptions in this year’s budget, according to a senior petroleum advisor.

“I can only see prices going down from where they are right now,” Roger McKnight with En-Pro International said. Oil closed at US$43 a barrel Thursday.

The Saskatchewan government is assuming West Texas Intermediate (WTI) oil will be an average of US$53 a barrel in 2015 and US$67 a barrel next year.

“I don’t know how anyone can guess what crude is going to be next month let alone next year. There are too many factors involved,” McKnight said.

Saskatchewan’s predictions are based WTI oil price forecasts as of Feb. 25 from BMO Financial Group, Energy Information Administration, NYMEX Futures, Scotiabank, Sproule Associates Limited, TD Bank and other confidential private sector forecasts.

“The world is looking for that answer and there is no one that has been right in the past,” Finance Minister Ken Krawetz told reporters Wednesday after delivering the budget.

“We base it on many different forecasters. They are forecasting that the price of a barrel of oil will remain lower … and there will be slow growth, slow return to something higher.”

McKnight said the government’s assumptions are unrealistic because prices are likely to drop due to overproduction and lack of storage. The U.S. has its highest inventory of crude in the last 80 years.

McKnight is predicting oil could scrape US$30 a barrel, which is close to operating cost for producers. Krawetz admitted the oil and gas sector is a volatile industry.

“We will continue to do our best to ensure that we monitor and rely on the best possible advice to predict what this budget will be and future budgets will be,” Krawetz said.

A surprising twist is his prediction that gas prices will actually drop this April and May, which hasn’t happened in at least a decade.

Most gas stations in Saskatoon and Regina have jumped from 94.9 cents per litre to 102.9.

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