The price of oil has inched higher over the last few months. This week, West Texas Intermediate, Brent and Alaska North Slope Crude are all selling for over $50 per barrel.
Longtime industry observer Larry Persily said the increase this month is based on a few things. Mainly, at a recent meeting of OPEC+, Saudi Arabia said it would cut production by 1 million barrels per day in February and March.
“The market says there is sanity today,” said Persily. “Prices went a little higher.”
Persily said markets may also be responding to some countries beginning to reopen from pandemic lockdowns this winter.
But Persily said there is still great uncertainty surrounding the pandemic and oil demand, making it impossible to predict what prices will look like in the months ahead.
Prices in the $50 per barrel range look really good compared to the lows the industry saw in the last year. But Persily said it still doesn’t solve Alaska’s budget problems — not even close.
“It takes us from a miserable budget to a less than miserable, but far from rosy [one],” said Persily. “If Alaskans are going to receive a Permanent Fund dividend sometime in 2021, it’s going to come from overdrawing the permanent fund earnings reserve more than the 5% maximum annual withdrawal in state law.”
If Alaska North Slope Crude were to average $60 per barrel for the coming fiscal year, Persily said, the state could mostly balance the budget — if it paid no Permanent Fund dividends.
The prices we’re seeing now do help oil companies build confidence in future investments, Persily said, but oil prices would have to reach $100 per barrel to fully fund the budget and dividends. No one is forecasting that.
