Oil prices are way down. The price of U.S. and global benchmarks are both below $40 per barrel.
Alaska North Slope Crude is in the $30 range. In the last 20 years, it’s only been that low a few times. From 2000-2004, in 2008, and in late 2015-2016.
The COVID-19 pandemic is driving some of the recent decline. But, prices were low even before the outbreak.
Larry Persily is a former federal pipeline coordinator in Alaska. He says the drop comes down to supply and demand.
“It’s pretty much basic economics,” Persily said. “More oil out there, and buyers are thinking ‘hey it’s going to be cheaper tomorrow, and next week and next month and if you don’t want my $34 today, heck, I’ll get it for $32 tomorrow.’ It’s not a good situation.”
Persily says reduced demand has been a problem for a while, and there are many factors at play. A big one: China’s economy weakened, and with it, demand.
And then came a global health emergency.
“The coronavirus outbreak came, demand in China went down, the world economy is contracting as people are producing less, flying less, manufacturing less,” Persily said.
So, already low demand has been pushed even lower.
Russia and the Organization of Petroleum Exporting Countries, or OPEC, met recently and tried to help balance global supply and demand. But, Persily says they were unsuccessful and now, to add to existing uncertainty, he says we’re seeing an oil price war.
In recent years, the price of Alaska North Slope Crude has been reliably higher than the U.S. benchmark, West Texas Intermediate. That also has to do with supply and demand. Alaska oil competes with foreign exports, rather than West Texas. Persily says different markets have different channels of supply and demand.
“2018, 2019, there was a period there where Alaska oil was worth $10 per barrel more than Texas,” Persily said. “Of late, we’re back to the $2 or $3 bump as was historical practice. Because global demand was weakening, global prices were going down, and Alaska rode it down with them.”
That’s why right now, the two commodities are much closer in price, and that price is low.
The big question now is: how far will oil prices drop and how long will they stay so low?
“We’ll get out of this and oil will start climbing, I think during this year certainly back into the $40s, maybe the $50s,” Persily said. “A lot will depend on the economy and how bad the coronavirus outbreak gets around the world.”
If oil prices don’t bounce back, it could mean more trouble for Alaska’s oil-dependent economy.