Alaska crude hits a six-month high

Posted: Tuesday, April 02, 2002

ANCHORAGE (AP) -- Unrest in the Middle East helped to push the price of Alaska North Slope crude oil to a six-month high Monday and state officials say the increase could help trim about $60 million from the projected $865 million state budget gap.

Alaska crude prices rose 67 cents Monday to $25.43 a barrel, the highest price since mid-September.

If prices stay in that range, state revenue forecasters said they expect the year's average oil price to rise about $1 a barrel, bringing the state about $60 million more than expected.

Oil prices began climbing in recent weeks, in part because the Organization of Petroleum Exporting Countries decided to hold down production.

Now the Israeli-Palestinian conflict and threats of a U.S.-Iraq war have oil traders worried the tension could disrupt oil supplies from the Middle East.

''The driving force here is the instability in the Middle East,'' said Michael Young, an analyst with Gerard Klauer Mattison, a Boston investment firm. ''Nobody knows what is going to happen over there.''

Rising oil prices are bad news at the gas pumps but a blessing for Alaska, where oil taxes and fees fund about 80 percent of the state's general budget.

Alaska faces an $865 million revenue shortfall this year and will have to draw on its $2.5 billion savings account, the Constitutional Budget Reserve. The account is expected to dry up in 2004.

Rising oil prices could reduce how much the state draws from the account. But prices would have to stay very high for a long time to come close to covering the huge shortfalls the state faces in the next few years.

''If things settle down in the Middle East, the (war) premium would go away really quickly,'' said Chuck Logsdon, the state's chief petroleum economist.

For the fiscal year ending June 30, the state Revenue Department projected an average oil price of $20.55 a barrel.

But since July 1, prices have averaged $21.09. If the current trend holds, state forecasters predict an average of $21.50 to $22 a barrel, a dollar or more above the original forecast. That would shrink the budget gap to about $805 million.

The Legislature has been looking at ways to bridge future shortfalls, including income taxes, a sales tax or tapping investment profits of the $25 billion Alaska Permanent Fund.

But basing long-term fiscal policy on today's oil price is risky, said Larry Persily, the state's deputy revenue commissioner.

''It's a Clint Eastwood situation: Do you feel lucky?'' he said.

Historically, oil prices offer scant comfort for people hoping an oil price spike will bail the state out of its fiscal problems. Since 1990, Alaska oil prices have averaged $17.50 a barrel.

The Revenue Department plans to raise its oil price forecast for the coming fiscal year when it releases its updated revenue forecast in about two weeks, Persily said.

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