The state of Alaska has spent decades trying to predict, forecast and even guesstimate the price of oil in an ongoing effort to help the governor and legislators draft an annual spending plan.
If state officials truly could know the price of crude a month, a year, two years out, budget-building work would be much easier. Or at least more accurate.
And while Alaska’s budget health, public services, education funding and road maintenance is much more dependent these years on Permanent Fund earnings than on oil revenues, any periods of high oil prices can be the proverbial icing on the low-fat budget cake.
Problem is, when prices are high and the projections show big tax and royalty checks could be headed to the state treasury, too many elected officials want to believe the numbers will never change. That high prices are here to stay, that happy days are here again, that there is money to spend.
Such as last month, when Gov. Mike Dunleavy looked at his Revenue Department’s latest oil-price forecast of $81 crude this year and said, in a reelection tone of voice, “there is no excuse” for legislators failing to appropriate more money for the fatter Permanent Fund dividend the governor wants.
On the day the department forecast that oil would average $81 through the end of the fiscal year on June 30, 2022, North Slope crude was selling for $85 a barrel.
Then last week, it was down to $70.
Oops. So much for that extra money in the treasury.
U.S. benchmark West Texas Intermediate crude was down as low as $65 per barrel.
The emerging Omicron Coronavirus variant is scaring oil markets, spreading more than just a new version of a spiked protein. It is spreading worries that another COVID-19 squeeze on global industry, travel and other businesses could knock the legs out from under this year’s oil demand and oil price recovery.
Meanwhile, the OPEC+ coalition of oil-producing nations last week decided not to scale back plans to bring more crude into the market in January, sticking with its schedule to gradually but fully restore the output cuts of earlier this year.
The worry of too much oil chasing the risk of declining demand has sent down prices almost 20% from October’s highs. The world changed, taking prices with it. The governor should know better than to think today’s prices will be tomorrow’s prices.
All Alaskans need to remember that oil prices can fall just as hard and fast as they rise. Don’t even think of spending the money until it is in the bank.
Wrangell Sentinel
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