Alaska oil industry and analyst react to U.S. oil prices crashing

Published: Apr. 20, 2020 at 6:36 PM AKDT
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For the first time in history, U.S. oil prices fell into negative territory. The key benchmark for the price of oil in the U.S., West Texas Intermediate, fell to negative $37.63 per barrel at one point in the trading day Monday.

“Prices crashed, and they crashed hard today,” said Larry Persily an Alaskan Oil and Gas analyst.

Many attribute the crash in the oil prices to a convergence of supply and demand issues.

Demand for gasoline, diesel, and jet fuel has plummeted globally due to the novel coronavirus pandemic, while a price war between OPEC+ producers Saudi Arabia and Russia helped create a glut in the global oil supply.

The combination of the supply and demand shocks adds up to one thing: a shortage of places to store crude oil.

“Just ask yourself, when was the last time you filled up your vehicle with a tank of gasoline?,” said Alaska Oil and Gas Association President Kara Moriarty. “I know I’m not filling up my van as often as I used to.”

Both Moriarty and Persily outlined the impact these oil prices will have on Alaska.

“When you have prices like they were late last week, the companies are in negative cash flow,” Moriarty explained over the phone Monday. “Then when you have a negative price, simple economics says it isn’t sustainable.”

Persily says that while Monday's sub-zero oil prices are immaterial to the price of Alaska North Slope crude oil, which doesn't trade on futures markets like Brent Crude or West Texas Intermediate, it's an unfortunate wake-up call for the state.

“For Alaska, it’s a reminder that oil revenues are going to be significantly down this year and next year,” Persily said. “The state is going to have to deal with its over-reliance on one source of revenue.”

During Gov. Mike Dunleavy’s daily press conference on the state’s COVID-19 response Monday, he shared his reaction to the news about oil prices dipping below zero.

“It was stunning, and we obviously have to keep an eye on the oil price,” Dunleavy said. “We expect oil prices to rebound, but we don’t expect them at the price that Alaska needs to balance its budget.”

As everyone continues to make sense of sub-zero oil prices, the focus in Alaska will soon turn to legislation, and how to fund even the most basic of state government services.

“It’s going to be a miserable job being an Alaskan legislator next year,” Persily said. ”Dealing with the need for taxes, new revenues, budget cuts, future of the dividend, it will be a very difficult job for a legislature.”

If oil prices bounce back, those in the Alaska oil and gas industry hope the state is ready for business.

“Alaska has to be poised to be competitive when companies have money to invest,” Moriarty said.

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