Global demand for oil is up, and prices have surged to their highest level since 2015.
In Alaska, North Slope crude rose to more than $63 a barrel by Monday.
At the Department of Revenue, Chief Economist Dan Stickel said they’re pulling together data for the state’s annual oil price forecast. It’s due out in December. While they’re watching the jump in oil prices, they’re not ready to change their long term forecast just yet.
“Short term price movements, they’re interesting, but if you’re looking at the impact on investment and production, you really have to look at more of the long term,” Stickel said.
In the long term, the state isn’t expecting oil prices to rally much higher, for much longer.
In late October, the Department of Revenue put out a preview of that forecast. And, state economists predicted that oil prices will average about $54 per barrel next year.
The price of oil is often volatile. Especially when global supply and demand don’t line up. Stickel said Alaska has generally been along for the ride when those dramatic shifts happen.
“That’s a lot of what we’ve been looking at is just this idea that, you know we had a few years of an under supplied market with oil prices up over $100, then we had a few years of an oversupplied market when prices went down to the $30’s and below,” Stickel said.
In the last year or so, Stickel said supply and demand have roughly balanced out. But even when there’s more demand than supply, it doesn’t typically have an immediate effect on the production of Alaska’s oil
Stickel said that’s because Alaska isn’t a ‘swing’ producer. Oil production projects in the state take a long time to explore and develop and bring on line.
“And they produce for a very long time. When a project in Alaska happens, it’s a very long term investment and it’s a long term production,” Stickel said.
So, when global demand for oil is higher than supply, Alaska’s not likely to step in and bring production up quickly, to meet that need.
“You look at the shale oil down south and you can make a decision to drill a well and you can have that well producing a few months later,” Stickel said.
So, for now, Stickel said the state is sticking with its forecast. Adjusting for inflation, they’re predicting that oil prices will stabilize in the $55 to $60-per-barrel range for the next five years.
The price increase helps the state’s bottom line. But, for the budget to be balanced – even with all of the budget cuts that have happened – oil prices would have to be much higher.
“You’d need [Alaska North Slope] prices to be up in the $90 per barrel range or higher,” Stickel said. “And I don’t think we’re anywhere near going back to those levels so, we still have a hole to fill.”