North Slope crude prices down since July

  • By Tim Bradner
  • Sunday, October 12, 2014 10:13pm
  • News

Bogged down in multiple-year, multi-billion dollar state budget deficits, Alaskans have been nervously watching North Slope oil production and hoping for an uptick.

They’ve largely forgotten about oil prices, the other side of the state oil revenue equation.

The news is not good, at least for the budget.

For consumers, however, it’s good news because it means lower fuel prices, although those prices are usually “sticky,” meaning they don’t fall as quickly as crude oil.

Alaska North Slope crude oil prices have been declining steadily since July, from about $111 per barrel in early July to about $91 per barrel on Oct. 3.

A drop in oil prices costs the state treasury in lost revenue, state Revenue Commissioner Angela Rodell says, and this would basically add to the expected $1.4 billion budget deficit that is projected for the fiscal year.

That estimate of the deficit assumes a $104 per barrel average price for fiscal year 2015, which began July 1.

However, some good news is that state revenues are better off under the state’s new oil production tax, the More Alaska Production Act upheld by voters in the Aug. 19 primary, than they would have been under the previous state oil tax, known as ACES.

“We are much better protected under MAPA than we would have been at these oil prices,” Rodell said. MAPA has a fixed tax rate of 35 percent while the tax rate under ACES fluctuated with changes in oil values and as oil prices drop the ACES tax rate would have dropped quickly.

At $90 per barrel, ACES would bring in about $3.08 billion. Under MAPA, revenues would be $3.22 billion, according to an analysis by the Revenue Department.

Rodell said oil production on the Slope is also picking up after it had dropped off during the annual summer maintenance season for North Slope facilities.

“You can see production picking up steam, and that’s comforting as well,” she said.

What’s pushing down oil prices is more oil supply, particularly in the U.S., and lackluster demand for oil on world markets. The stronger U.S. dollar, which is the currency used for oil trading, is also a factor, Rodell said.

As for the selling price of North Slope oil, Rodell said that more lighter-grade Bakken shale oil is showing up in California, and that is undercutting the market for Alaska on the west coast.

ConocoPhillips’ shipment of a cargo of Alaska North Slope oil to Korea rather than the U.S. west coast is another signal. Despite the longer sailing distance from Valdez to South Korea — about three times longer — the company said the higher margin for oil it would get compared with the west coast more than offset the higher cost of shipping.

“California is starting to use Bakken oil, and we’ve seen greater demand for it, but it’s important to note all the indices are converging,” to Alaska’s disadvantage. “Brent (crude oil) is down, WTI is basically holding, and ANS has come down. Our oil is priced off Brent as a waterborne cargo. There’s also the slowdown in Asia demand, particularly in China,” Rodell said.

Greg Sharenow, executive vice president at Pacific Investment Co., voiced similar views in comments Bloomberg News.

“You’re seeing pretty good in oil supply and that’s weighing on the market,” Sharenow told Bloomberg.

The International Energy Agency has meanwhile reduced its outlook for oil demand growth, and also cited increased exports from Libya and U.S. domestic production.

Bloomberg also reported that oil production by 12 producing nations in the Organization of Petroleum Exporting Countries, or OPEC, rose by 413,000 barrels per day to 30.93 million barrels per day in September, the highest level for OPEC in the last year.

Significantly, Saudi Arabia, a key producer in the OPEC group, has declined to cut production to shore up prices and instead cut its price by $1 a barrel, a signal that the Saudis are more focused for now on maintaining market share than propping up prices.

The last time Saudi Arabia decided to go for market share over sustaining prices, at least in a significant way, was in the late 1990s. The move caused a cascade of oil price drops as producers competed to lower prices and maintain market.

The end result was a drop in oil prices, including Alaska’s, to about $9 per barrel in 1998.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

More in News

Council member James Baisden speaks in favor of an amendment to the City of Kenai’s budget that would add funds for construction of a veteran’s memorial column in the Kenai Cemetery during a meeting of the Kenai City Council in Kenai, Alaska, on Wednesday, June 5, 2024. (Jake Dye/Peninsula Clarion)
Kenai budget amendment allocates funds for veterans’ columbarium in cemetery expansion

A columbarium is an aboveground structure that houses cremated remains

Council member Alex Douthit speaks in favor of an amendment to the CIty of Kenai’s budget that would reduce funds allocated to the Storefront and Streetscape Improvement Program during a meeting of the Kenai City Council in Kenai, Alaska, on Wednesday, June 5, 2024. (Jake Dye/Peninsula Clarion)
Funding reduced for City of Kenai’s storefront improvement grant program

Just over a year after the City of Kenai established its Storefront… Continue reading

Mount Redoubt can be seen across Cook Inlet from North Kenai Beach on Thursday, July 2, 2022. (Erin Thompson/Peninsula Clarion file photo)
Hilcorp only bidder in Cook Inlet oil and gas lease sale

8 million acres were available for bidding in the sale, spread across Cook Inlet and the Alaska Peninsula region

Council member Phil Daniel speaks during a meeting of the Kenai City Council in Kenai, Alaska, on Wednesday, June 5, 2024. (Jake Dye/Peninsula Clarion)
City of Kenai approves budget

A draft of the document says that the city expects to bring in around $19.5 million in the next year, and spend $20.2 million

A sockeye salmon rests atop a cooler at the mouth of the Kasilof River on Monday, June 26, 2023, in Kasilof, Alaska. (Jake Dye/Peninsula Clarion)
A sockeye salmon rests atop a cooler at the mouth of the Kasilof River on Monday, June 26, 2023, in Kasilof, Alaska. (Jake Dye/Peninsula Clarion)
Kasilof River personal use setnet opening delayed

Low counts for Kenai River early-run king salmon motivate restriction

Ben Meyer, environmental scientist and water quality coordinator for the Kenai Watershed Forum, teaches children about young salmon freshly pulled from the Kenai River during the Kenai River Fair at Soldotna Creek Park in Soldotna, Alaska, on Saturday, June 7, 2024. (Jake Dye/Peninsula Clarion)
Kenai River Fair debuts with array of activities and education

Previously called the Kenai River Festival, the newly refocused fair featured booths and activities dedicated to education about the outdoors, wildlife and ecosystems

A sign welcomes visitors on July 7, 2021, in Seward, Alaska. (Photo by Jeff Helminiak/Peninsula Clarion)
Seward Pride Alliance rallies after bomb threat displaces drag story hour

The event was able to continue after a delay and a fundraising effort has brought in more than $13,000

Jake Dye/Peninsula Clarion
City of Kenai Public Works Director Scott Curtain; City of Kenai Mayor Brian Gabriel; Kenai Peninsula Borough Mayor Peter Micciche; Sen. Lisa Murkowski; Col. Jeffrey Palazzini; Elaina Spraker; Adam Trombley; and Kenai City Manager Terry Eubank cut the ribbon to celebrate the start of work on the Kenai River Bluff Stabilization Project on the bluff above the Kenai River in Kenai on Monday.
‘The future is bright for the City of Kenai’

Kenai celebrates start of bluff stabilization project after developing for 40 years

A Kenai Peninsula Food Bank truck in the Food Bank parking lot on Aug. 4, 2022 in Soldotna, Alaska (Jake Dye/Peninsula Clarion)
Kenai Peninsula Food Bank’s Spring Festival set for Friday

The event will feature a wide swath of vendors, including lots of nonprofits, who will be sharing information about their services

Most Read