“Bouncy” sounds less dramatic than “volatile,” and certainly less depressing than “money-losing.” And it’s not nearly as scary as “billion-dollar bust.”
But bouncy is an appropriate word for forecasting state earnings this year.
It’s not unexpected, as pretty much all of Alaska’s money is based on oil prices and investment returns, and both are about as stable these days as a small boat on rough seas, with an underpowered outboard.
And though Alaska needs leaders who know what to do to safely ride it out, it’s an election year and Alaska has several candidates for governor and Legislature who want to be skipper because they think they know better how to steer — even though they never took the Coast Guard license exam. They will work to convince enough voters who are seasick from past promises that they know how to find calm waters and clear skies amid the hard bounces.
Don’t believe that they can do anything to control the seas — no matter what they say. World markets control oil prices and investments, not anyone in Alaska. Any candidate who reassures you that down investment markets are a fluke and that oil prices will be strong forever is suffering from vertigo and needs to stop spinning false tales.
The thick, brownish Alaska North Slope crude oil, which turns green when the tax and royalty checks are deposited into the state treasury, had been climbing in price since fall of 2020, reaching almost $128 a barrel on June 8. That’s triple what it was at the start of the rise more than 18 months ago.
Then, as happens with oil, it reversed direction. Prices were down to $103 per barrel as of last Friday.
The difference to the state general fund between $128 and $103 oil is about $130 million less each month.
At $103, Alaska is still rich, just a lot less so. And with declining gasoline consumption in the U.S. and elsewhere due to high prices at the pump, and a serious risk of a recession, oil could fall much further than $103. The difference between $80 a barrel and $103 is another $130 million-a-month drop in state general fund dollars.
But there is always the Alaska Permanent Fund to generate investment earnings and help cover any decline in oil dollars. The fund is solid, well invested and managed for the long term. But it can lose money just as fast as oil prices drop.
The Permanent Fund fell in value more than $5 billion in the first six months of calendar 2022. The Dow Jones Industrial Average lost about 15% in market value in the first six months of the year. Rising interest rates, inflation and other factors are making it easy to lose money on a wide range of investments.
In time, markets will turn back up and oil prices will stabilize — until they turn down, again. But no one knows when, and a lot will depend on Russia’s invasion of Ukraine and the world’s reaction to the attack and how it affects the global economy.
Until then, the worst thing would be sudden, irresponsible turns because a candidate wins the helm and proclaims to know more than the weather charts, telling voters, “Trust me, I know better, this isn’t that hard.”
Be skeptical when listening to candidates over the next few months. The ones who tell you there is nothing to fret over, that they can painlessly solve the bounce in oil prices and investment earnings, probably are not the ones you want to go to sea with.
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