Officials: Oil prices could mean more money for state - if trend continues
After oil prices briefly slipped above $100 a barrel on Wednesday, Alaska officials said they weren't sure how the recent spike will affect the state budget.
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"It's quite possible that it could add more revenue, but if prices go down, we could get less revenue," said Michael Williams, chief economist with the Alaska Department of Revenue.
About 90 percent of the state's general-purpose unrestricted revenue, which the Alaska Legislature and governor have discretion to spend, comes from oil production, Williams said.
"As (oil) prices go higher, it means the state gets more revenue ... assuming the trends hold," he said.
The fall 2007 state revenue forecast projected the cost of oil for fiscal year 2008, which began in July, at $72.64 per barrel, based on a yearly average of market closing prices. The forecast of the yearly average for fiscal year 2009 is at $66.32.
The oil prices closed shy of $100 per barrel on Wednesday, the first time crude has reached the triple-digit mark, according to The Associated Press.
The state budget is based upon semi-annual revenue forecasts that take into account multiple factors, officials said.
The forecasts generally have three major components: market price of oil, volume of oil and production costs, Williams said.
Many variables can alter the actual revenue generated from oil in Alaska, Williams said. Some of those variables can include unexpected production shutdowns - such as what happened in Prudhoe Bay in 2007 - the volatility of the world oil market, or the increase of production costs for oil companies, he said.
"The point is they work in either direction," Williams said. "So it's a moving target with several moving parts, so we have to make assumptions of all the moving parts."
Williams said there are many variables that could change the actual revenue the state generates from oil as the budget process moves through the Legislature in coming months.
"It's sort of a demand-and-supply thing, and right now the view in the market is the demand is growing greater than supply," he said.
Gov. Sarah Palin's fiscal year 2009 budget proposal released in early December totals $8.3 billion, of which $4.4 billion is part of the general fund.
• Contact Eric Morrisonat 523-2269 or eric.morrison@juneauempire.com.