Oil takes major plunge

Posted: Tuesday, September 25, 2001

ANCHORAGE -- The price for a barrel of North Slope crude plunged nearly $4 Monday, bringing the figure below the $20 mark for the first time since the summer of 1999.

In New York trading, Alaska crude delivered to the West Coast brought $18.51 a barrel at the close, down $3.96 or 18 percent from Friday's figure.

The oil futures market showed weakness across the board, with traders apparently persuaded that ripples from the terrorist attacks could push the sputtering economy into a major decline.

''The situation right now is one in which the biggest concern is that this is just the trigger to take an already weak economy into a recession,'' said Chuck Logsdon, oil economist for the Alaska Revenue Department. ''The market is obviously really volatile.''

Monday's drop in the futures market came after the Lundberg Survey reported Sunday that retail gasoline prices fell about two cents a gallon over the last two weeks.

''People are not just canceling air travel, but travel, period,'' said analyst Trilby Lundberg. On the spot market Monday, unleaded gas prices also took a major hit, dropping more than 8 cents -- or 12 percent -- to just over 63 cents a gallon.

Natural gas prices fell below $2 a thousand cubic feet, well below the $3 figure that oil companies say is needed to make a gas pipeline from the North Slope profitable. The percentage decline of natural gas prices on Monday was just 3 percent, however.

The Organization of Petroleum Exporting Countries will meet starting Wednesday to decide whether to change its quotas in an attempt to shore up the price. But its members are under pressure from the United States to keep supplies and prices stable.

Besides, noted Logsdon, ''maybe lower prices will shorten the recession, and cause the recovery of oil prices sooner.''

Already this year, OPEC has cut its production target by a total of 3.5 million barrels daily in an effort to keep prices from declining.

North Slope crude traded generally in the $23 to $26 range over the summer. The price on the New York spot market closed just over $25 a barrel the day before the terrorist attacks.

After a week's hiatus, the market reopened on Sept. 17 at $25.81, with concerns about supply interruptions apparently pushing the prices up. But after that, prices marched steadily downward, dropping $3.34 a barrel by Friday.

Then came the big drop of nearly $4 on Monday.

''It may be too soon to tell,'' said Logsdon, the state economist, ''but this is a pretty big drop. Barring some hostilities, it could hold.''

The price of oil has a big role in Alaska's economy and politics, with each $1 in the price of oil translating into $65 million in revenue for the state's general fund, Logsdon said. If the price remains in the teens, budget writers could be facing a dilemma, and the state's budget reserve, now projected to last until 2005, could be drawn down much sooner.

The last time oil prices dropped so far so quickly was after the 1991 Persian Gulf War, Logsdon said. North Slope crude prices were last below $20 in August of 1999. The last time they were as low as $18.51 was in July of that year.

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