Conflicts push up price of crude oil

N. Slope oil rises to $32 per barrel as war with Iraq looms, Venezuela labor strike continues

Posted: Friday, January 17, 2003

ANCHORAGE - A nearly two-month labor strike in Venezuela that has crippled exports, coupled with anxiety that the United States will go to war with Iraq, is easing Alaska's budget deficit.

The price of Alaska North Slope crude reached $32.63 a barrel Thursday, well above the little more than $22-a-barrel average for the past 53 months.

"It's high," said Larry Persily, the state's deputy revenue commissioner, of Thursday's price. "When there is conflict and tension people get nervous and when markets get nervous, markets go up."

Alaska crude historically has averaged just under $18 a barrel since 1986. Thursday's price was approaching twice that amount. So far this fiscal year ending June 30, the price of Alaska North Slope crude has averaged $26.95 - about $5 above the four-year average.

The price of Alaska crude reached $25.69 a barrel in December and has been going up since, Persily said.

When the price of oil is high, Alaska makes more money in the form of production taxes and royalties. Each $1 increase in the average price of Alaska oil over a year equates to between $60 million and $65 million for the state.

"It affects us in that every day the price of oil is higher, we make more money," Persily said.

Oil royalties and taxes make up about 80 percent of the state's revenue.

The state issues budget forecasts twice a year. The most recent forecast, at the end of November, predicted that if oil maintained a $25.94 average, Alaska would face a $747 million deficit by the end of fiscal year 2003.

Persily said if Thursday's price held for the rest of fiscal 2003, the price of oil would average about $29 a barrel and the deficit would have shrunk to about $550 million.

For the budget deficit to disappear altogether, Alaska oil would have to be selling for about $50 a barrel for the rest of the fiscal year - an extremely unlikely event.

However, if the price of Alaska crude remained high it could give lawmakers extra time to find a solution to the state's budget problems.

"A lot will depend on Venezuela and Iraq," Persily said.

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