Alaska oil tops $50, state coffers fill up

State's chief economist: traders see supply constraints hiking prices

Posted: Thursday, March 10, 2005

ANCHORAGE - The price for Alaska oil rose above the $50 mark again, continuing the state on its way to a hefty budget surplus for the fiscal year.

North Slope crude for delivery to the West Coast settled at $50.64 a barrel on Tuesday, up 70 cents from the day before.

It wasn't the first time Alaska oil topped $50. North Slope crude hit $50.85 on Oct. 22, trending down in following weeks to a low of $33.98 on Dec. 10.

Michael Williams, chief economist with the state Department of Revenue, said the price of oil is being driven by perceptions of traders in the marketplace. He said they see supply constraints, such as an expected lag in Saudi Arabia's promised production boost and Iran's lack of financing to produce its large oil reserves. Traders also see demand factors such as reports about China's growing appetite for oil.

High oil prices are fattening up state coffers.

So far, state oil price prognosticators have been fairly accurate in forecasting the surplus for the current budget year, which ends June 30.

The state in December predicted a surplus of $653 million for this budget year. So far, the surplus is lagging behind that target somewhat, said Brad Pierce, senior policy analyst in the state Office of Management and Budget.

State Sen. Gary Wilken, a Fairbanks Republican and Finance Committee co-chairman, said the state is on pace for a $530 million surplus.

Nonetheless, Wilken and his legislative colleagues aim to spend some of the money. This week, the Senate passed a $244 million supplement to this year's budget that includes $98 million from the state's general fund, with the rest coming from federal and other sources.

Assuming oil prices hold up, that $98 million will trim the budget surplus to about $430 million, Wilken said.

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