What others say: Oil price drop not without benefits

  • Tuesday, January 6, 2015 4:30pm
  • Opinion

As unlikely as it seems, there are a few benefits to Alaska residents that come with lower oil prices. The slump, in which prices have dropped to levels between $60 and $80 per barrel in recent months, has left the state budget in a world of hurt, and there’s no question residents will feel a host of negative effects of that lost production tax revenue. But there’s a silver lining for residents that takes a bit of the sting out of the market downturn.

The first and most obvious boon of low oil prices comes for Alaska drivers at the gas pump. The drop in oil prices from more than $100 per barrel to about $60 per barrel has resulted in gas prices dipping from the $4-per-gallon range in summer down to just more than $3 per gallon at present in Fairbanks. Heating fuel prices have experienced a similar drop, with fuel now at about $3.05 per gallon and giving residents some relief when paying home heating bills.

Unfortunately, Interior villages haven’t seen much, if any, benefit of the drop in gas prices yet, as they tend to purchase gas and heating fuel in bulk orders delivered by barge, at a price set at the time of initial purchase. That means residents in outlying areas — who already pay some of the highest fuel costs on the continent — are stuck paying high prices for petroleum products until they deplete existing supply and make a new order to fill village tanks.

There are also secondary benefits likely to matriculate to state residents, as prices on many commodities are governed by the cost of transportation.

Everything shipped into the state from Outside, whether furniture, building material or groceries, passes the cost of fuel to transport it to the state along to the consumer. Retail prices do tend to lag, as retailers are less sensitive to downward cost trends than upward ones, but the longer transportation costs stay low, the more likely it is competition between suppliers will force prices downward.

Though the cost of airfare has yet to show impacts from the reduced cost of fuel, that may well take place as oil prices remain low. Fuel costs represent about 30 percent of total operating costs for airlines, and while ticket prices aren’t yet dropping — a fact that led to pointed questions from Congress to airlines in mid-December — strong competition between airlines for coveted routes are likely to lead to lower ticket prices before long. We’ve seen that in Alaska recently with the summer fare wars between Delta and Alaska Airlines — with luck, perhaps 2015 will bring round two.

The continued decline of oil prices will hit the state hard, leading to a host of impacts to state services like education, health and social services and public safety. But in addition to the aforementioned benefits to consumers, the downturn in state revenue has one major plus for Alaska: reining in the budget, which had been given lip service by the Legislature as spending swelled in recent years, is now not only a priority but a mandate. It’s time Alaska returned to living within its means.

— Fairbanks Daily News-Miner,

Jan. 3

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