For the first time since the start of the state fiscal year on July 1, North Slope oil prices have dipped below the break-even point for the state budget.
On Friday, the value of Alaska North Slope crude oil hit $70.49 per barrel. According to estimates by the nonpartisan Legislative Finance Division, if North Slope production averages $71 per barrel and 526,600 barrels of oil per day, the state will receive enough money from petroleum taxes to erase the state deficit.
That’s because the Alaska Legislature earlier this year approved Senate Bill 26, which calls for a portion of the earnings of the Alaska Permanent Fund to be used for general government expenses. Of the $2.7 billion withdrawn from the Permanent Fund in this fiscal year, $1 billion has been used for dividends, and $1.7 billion will be used for expenses.
Without that $1.7 billion, North Slope production would need to average nearly $100 per barrel for the state to break even on its budget.
Prices peaked at $85.36 per barrel on Oct. 3 amid concerns over renewed sanctions against the nation of Iran. Without Iranian oil, it was thought that world supplies would be insufficient to meet demand. The Organization of the Petroleum Exporting Countries (OPEC) responded to the sanctions by boosting production, an act that has kept oil prices low.
That trend may reverse itself soon: OPEC countries are scheduled to meet this weekend in Abu Dhabi and have signaled they may cut production, Bloomberg reported.
If the current price dip proves temporary, the state’s fiscal situation is unlikely to be affected. Since July 1, prices have averaged $75.95 per barrel, according to Department of Revenue figures, and it is the average price across the entire fiscal year — from July 1, 2018 to June 30, 2019 — that determines whether the state runs a deficit or a surplus.
Production averages have been below the needed 526,600 barrels per day, but winter production is higher than summer production, which is affected by maintenance.
• Contact reporter James Brooks at jbrooks@juneauempire.com or 523-2258.
