Alaska North Slope oil prices tumbled to $18.21 a barrel on Tuesday, and economists at the state’s Department of Revenue are working to determine what drove the price down and what to expect going forward.
Chief economist Dan Stickel says there are a few reasons why prices dropped that quickly.
First, there’s a glut of oil on the global market. Russia and Saudi Arabia stopped curtailing their production. The price war between the two countries has triggered a major drop in the price of oil. That glut also means that Alaska North Slope crude is seeing new competition in the West Coast markets it traditionally serves.
Second, the COVID-19 pandemic has caused a huge drop in demand. In a time of social isolation people just aren’t driving or flying as much as they used to. The U.S. Energy Information Administration put out a forecast on Wednesday that showed a 25% decline in motor fuel use in the first quarter of 2020. That decline is expected to continue.
Stickel says refineries on the West Coast are also producing less, in part because many refinery workers are sick with COVID-19.
He hopes this is a temporary drop and that prices will rebound to what the Department of Revenue forecast on Monday. But that report has oil prices expected to stay under $30 a barrel through June.
Correction: An earlier version of this story misstated the day oil prices plummeted to $18.21. Prices fell on Tuesday, not Monday.