Rising oil prices could push Alberta back into the black and reverse NDP's political fortunes

Alberta's economy and its politicianslive and die with the fickle ebb and flow of oil prices.

You could almost hear the provincial NDP holding its breath as the price of West Texas Intermediate, the North American benchmark price,slowly edged up to around $65per barrel, which isalmost 50 per centhigher than where it was ayear ago.

It's easy to see why: the political survival of Alberta Premier Rachel Notley and her government could welldependon that rise.

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Jason Kenney and his opposition United Conservative Party have been hammering the NDP over the growing debt being racked up in Alberta.

It is a deepening fiscal and political hole that the NDP will only be able to fill withbillions more in petro-dollars, cash that won't appear unless the price of oil continues to go up.

With less than a year before Albertans go to the polls, the rising price of WTIcould help the government pull off what it hasn't been able to so far balance the budget.

WhenNotley'sNDPtook office in May 2015, the price of oil was hovering around$60 a barrel. Nine months later, a barrel of West Texas Intermediate was selling for less than $30.

TheNotleygovernment received just$2 billion in revenuefrom bitumen and crude royalties in its first yeara far cry from the$7 billionthat poured into the provincial treasury the year before.

That $5 billion gap in revenue contributed toa more than $6 billiondeficit in the government's first year, something that didn't sit well with manyAlbertans, who like to see themselves as fiscally conservative.

The unease with the deficit seems to at least in part bereflected in recent polling data, which showsfewer than a thirdofAlbertanssupport the rulingNDPand58 per centwant to see a balanced budget.

As the price of oil recovers andthat balanced budget becomesmore possible, says Mount Royal University political scientist Lori Williams, thechangein economic conditions could help shift the political fortunes of the provincial government.

"A short-term deficit with a realistic plan to balance or at least movein the direction of reducing the deficit will generate a little bit more tolerance for the deficit," she said.

So with that in mind,a look at where the price of oil could be headed and what it could mean for Alberta's finances makes sense.

First, let's be clear, predictingpricesin the volatile world of oil and gas is nearly impossible. And pinpointing their impact on the provincial bottom line is hardly an exact science.

This year, about $2.8 billionisexpected to flow into the treasury from the sale of bitumen and crude based on an average price of $59US per barrel for West Texas Intermediate over the fiscal year.

That is about $6 a barrel less than the average price over the first two months of this fiscal year, and there is talk of higher prices and at least some whispers of a return to $100 oil.

Kevin Birn of IHS Markitdoesn't see $100 oil any time soon, but he does believetheprice could continue to rise.

Birnbelieves thatoil prices will likely "fluctuatearound the $70 mark" this year, although he says $80 oil is certainly a possibility.

The province says that for each dollar the price of oil rises, $265 millionmakes its way into the provincial treasury.

To put that in perspective, all things being equal, if a $65 US price holds for the year, the $8.3 billionprovincial deficit would shrink to $6.7 billion (all deficit numbers in Canadian currency).

If the average price for the yearwere to rise to $75US not impossible since it touched $70 just last month the deficit shrinks again to $5.1 billion. At $85 US per barrel, the deficit becomes just $2.45 billion.

Using just this single variable, Alberta's budget would balance with a WTI price of around $91US per barrel averaged out over the fiscal year.

Explore oil prices over the past calendar year with the interactive graph below:

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Birndoesn't expect the price of oil to rise that high and warns there is always the possibility of "downside risk" to oil prices, given recent trade riftsthat could slow global economicgrowth.

There are also many other variables at play when calculating the impact that rising oil prices could have on the province's budget.

One important consideration isthedifference between the price paid for light and heavy oil, known asthe differential.

Much of Alberta's productionis heavy oil from the oilsands, which is more expensive to refine and is sold at a discount. This price is known as Western Canada Select. The difference between it and WTIisthe differential.

The provincial government has assumed that the differential for this fiscal year will be $22.35 US a barrel, meaning that Alberta producers will get that much less for each barrel of oil they sell compared to other producers.

Thisgap isoften called the "bitumen bubble," and the finance department assumes thatfor each dollar this differential goes down, the provincial government will get an extra $210 millionin revenue.

So far, in the first two months of this fiscal year, that differential has been about $17.40 per barrel, about $5 lower than expected. If that price holds, you can knock another billion dollars off the provincial deficit, and the budget would balance at an annual average of around $87 US per barrel.

But University of Calgary economist Trevor Tombe says that number likely isn't entirelyaccurate either.

He points outthat as the price of oil rises and more Albertabitumenand crude is sold, both the value of the Canadian dollar and interest rateswill almost certainly rise, costing the province hundreds of millions of dollars.

Tombe says"all of these things are very closely interrelated," so just looking at the change in the price ofWTIdoesn`t give an accurate sense of what the provincial deficit willbe.

Add to that, increases in corporate and income taxes that would come along with higher oil prices, and,Tombesays, it is extremely difficult to pinpoint precisely how high the price of oil would have to rise to balance Alberta's budget.

Once all of thosefactors are considered, an average WTIprice ofaround $80per barrel over a full fiscal year "starts to get into the right ball park" as far as balancing the budget, Tombe said.

Whether thatnumber is attainable this year is almost impossible to predict, but it islikely a long shot.

The same could also be said forthe provincial NDP's chances of re-election, if the price of oil doesn't continueto rise.