Oil below $40; state savings could be tapped

December 4, 2008 

Alaska oil prices closed below $40 a barrel today for the first time in nearly four years.

With oil prices around the globe, Alaska prices have been smacked by slackening demand amid a worldwide economic recession.

On West Coast open markets, North Slope oil was prices at $39.17 a barrel, its lowest price since early 2005.

The decline of oil prices around the world has been sharp and stunning since they peaked at about $145 a barrel just four months ago. While wounding places that produce oil, like Alaska, the unprecedented drop has provided relief to consumers and businesses.

In Alaska, the plunge is happening as the governor’s office is drafting a budget proposal for the state fiscal year that begins next July. The budget will follow a record $6 billion in spending of general state revenue for the current fiscal year, a budget written when oil prices were at breathtaking heights last spring.

The new budget will need oil prices well above today’s prices to let the Legislature maintain spending without drawing down state savings accounts.

Gov. Sarah Palin said today that tapping savings might be necessary.

“For the first time in many years, the state is presenting a general fund budget that spends less than the current one, especially when adjusted for inflation,” Palin said. “At the same time, by saving $5 billion in the last legislative session, we will be able to continue essential services without any imminent threat to government services should the price fall even further.”

She also noted that although oil prices are falling, they’re historically high.

“A few short years ago, $40 per barrel oil prices would have been great news for the state of Alaska. We need to keep this in perspective,” she said.

DISBELIEF

Veteran energy analysts were stunned as they watched the price of light sweet crude oil dip nearly 7 percent, or $3.12, to settle at $43.67 on the New York Mercantile Exchange by early afternoon. This oil is a better grade that Alaska oil, so it is priced higher.

No one believed crude would lose $100 in value between July and December, said Tom Kloza, publisher and chief oil analyst at Oil Price Information Service.

Some analysts believe demand could evaporate further early next year.

“The traders are looking at that and they’re saying, ‘Well, December is OK, it’s relatively balanced here and there, but my goodness all of these layoffs after Christmas, the cold weather, the cocooning, the bills coming due after Christmas, January is just going to be awful,’” Kloza said.

Dour economic reports continue to spill out during a week when the National Bureau of Economic Research declared the economy entered a recession in December 2007.

The government said the number of people continuing to claim unemployment benefits last week reached 4.09 million, the highest level since December 1982, when the economy was emerging from a recession.

Fewer jobs, fewer factory orders and slowing construction have added up to a severe drop-off in energy use, sending crude prices plunging.

“People are waking up to the fact that there may not be much demand,” said Phil Flynn, an analyst at Alaron Trading Corp.

ECONOMY IS WORSENING

There were signs that the economy continues to worsen.

AT&T said today it was slashing 12,000 jobs, or about 4 percent of its work force. Chemicals company DuPont said it will cut 2,500 jobs and media conglomerate Viacom Inc. said it will eliminate about 850 jobs.

Prices at the pump continued to decline, falling 1.4 cents overnight to $1.79, according to auto club AAA, the Oil Price Information Service and Wright Express. That price is down 60 cents from just last month.

The average price in Alaska, $2.74 a gallon, remained the nation’s highest. Alaska is one of only three states remaining where the average is above $2. The Alaska average has fallen 73 cents in the past month.

The average price in Anchorage was $2.58 a gallon Thursday, down 61 cents in the past month, AAA said.

Though there are signs that Americans are able to drive more with prices plunging, Flynn does not see enough demand to justify big increases in oil and gas prices.

“We have entered a new era of lower gasoline prices and oil prices,” he said.

Anchorage Daily News is pleased to provide this opportunity to share information, experiences and observations about what's in the news. Some of the comments may be reprinted elsewhere in the site or in the newspaper. We encourage lively, open debate on the issues of the day, and ask that you refrain from profanity, hate speech, personal comments and remarks that are off point. Thank you for taking the time to offer your thoughts.

Commenting FAQs | Terms of Service