Energy News Today

High oil prices are great news for Alaska’s budget. But we shouldn’t bet the farm on them.

Alaskans have been anguishing over the price of oil ever since 1977, when the first barrel of crude flowed down the trans-Alaska oil pipeline.

That was the same year Elvis Presley died. And just as people have been speculating ever since about Elvis’ death, so, too, have Alaskans spent too much time speculating about the price of oil.

Some advice: Don’t be cruel, don’t get all shook up about it, and cast aside your suspicious minds. Shake off the fixation, don’t let market predictions rattle you, and roll with whatever happens.

Alaska cannot control or even predict the price of oil. All we can do is watch the up-and-down moves in the market, understand why it is happening, and adjust our budgetary lives only as necessary. It’s better that way. Just think if legislators had to determine a specific forecast for global oil prices — it could equal our political debates over the size of the Permanent Fund dividend. Besides, we’d usually get it wrong, cryin’ all the time.

As of the start of this week, crude was selling at its highest since 2014, close to $90 per barrel. That is a fact, but everything after tomorrow is a prediction. In many cases they are educated predictions based on a lot of knowledge, but they are not a bankable fact.

As for banks, they all have analysts who follow energy markets and issue forecasts and predictions about future oil prices. Those range in the past week from Citigroup, which sees $65 oil by the end of the year as more supply comes to market, to Morgan Stanley and Goldman Sachs seeing $100 crude in their crystal balls, as well as Bank of America predicting $120 oil this year.

As for Alaska, which depends heavily on oil taxes and royalties to pay the bills, though not as much as in past years, when taxes were higher and oil production was a lot higher, that wide of a price forecast spread is a challenge for budget writers.

The difference to the state treasury for the fiscal year that starts July 1 between $65 and $100 oil is about $2.5 billion — revenue at $100 crude would be more than double the treasury deposits at $65 crude. And if Bank of America’s number comes true, there could be even more on the budget table for next year.

Yet don’t go telling the governor and your legislators how to spend all that money. First, those revenue estimates apply only if prices average that high for the entire year. Short-term price spikes do not produce nearly as much revenue.

And no matter how much bank analysts, traders, market watchers and others study the data and projections of global supply and demand, their forecasts are subject to change — major change — every time the world changes. Oil prices have been jumping around lately as much as Elvis did on the stage.

Will Russia invade Ukraine? Will another COVID-19 variant shut down world commerce? Will OPEC+ overcome its production challenges and internal politics to pump more crude? Will U.S. shale producers see a future of record profits and finally decide to drill more wells? Will the world have too much oil or not enough oil when Alaska starts a new fiscal year on July 1?

No one knows for sure or can even promise they will be close. It’s good for Alaska’s elected officials to think about it, but not get euphoric over what could be temporary dollars.

Cautious restraint is a good thing. Spend some, save more, and don’t bet the reelection campaign on high oil prices.

Larry Persily is a longtime Alaska journalist, with breaks for federal, state and municipal service in oil and gas, taxes and fiscal policy work. He is currently owner and editor of the weekly Wrangell Sentinel newspaper.

The views expressed here are the writer’s and are not necessarily endorsed by the Anchorage Daily News, which welcomes a broad range of viewpoints. To submit a piece for consideration, email commentary(at)adn.com. Send submissions shorter than 200 words to letters@adn.com or click here to submit via any web browser. Read our full guidelines for letters and commentaries here.

Read More: High oil prices are great news for Alaska’s budget. But we shouldn’t bet the farm on them.

2022-02-02 21:04:03

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