Over the weekend, attacks on an oil field and processing facility in Saudi Arabia knocked out more than 5% of the world’s daily oil production.
It was the biggest disruption of global oil supply in decades.
Politically, the attacks have generated a lot of momentum. And, briefly, oil prices spiked.
In Alaska, that meant that on Monday, Sept. 16, North Slope crude prices jumped to their highest level in more than two months.
But that jump was short-lived, and the incident hasn’t had a lasting impact on oil prices — or what those prices are predicted to be in the future.
There are a few reasons for that. One is that Saudi Arabia’s energy minister announced on Monday that it is already supplying oil to customers at pre-attack levels. Prince Abdulaziz bin Salman pledged that that country would be back at normal production by the end of the month.
“It was surprising news, and the market reacted thinking there was going to be a lot of supply taken off the market, and it turns out the news wasn’t as bad as feared,” said Alaska Department of Revenue Chief Economist Dan Stickel.
“Any short-term volatility isn’t going to have much impact on the budget,” Stickel said. “Right now, prices are below what we had in the latest revenue forecast.”
That revenue forecast is the state’s semi-annual prediction of how much money will be coming in and where it comes from. It’s a big part of how the state develops its fiscal plan. And the price of oil is central to that forecast.
Right now, the Department of Revenue is getting ready to put out its semi-annual forecast. It usually comes out in December.
But some things are going to be different this year.
In the past, the state would bring in oil experts from other parts of the country and the rest of the world. In a closed-door meeting, the outside experts and state economists would come up with an oil price prediction that would drive state spending for the next year.
Stickel said they’re not doing it that way this year: “We are going to look at the futures market as the basis for our price forecast.”
That’s it. No price-forecasting session. No out-of-state experts. Just state employees checking futures and using global oil prices as an indicator of what’s in store for the state.
Stickel said there are a few reasons for the change. A big one is money.
“We’re going to save a lot of time and expense by just using the public forecast source,” Stickel said. Paying the dozens of state employees and outside experts to gather in one place was expensive.
Also, there’s a lot of widely-available information now about global oil markets — and the things that drive prices — that wasn’t available when the state started predicting oil prices.
Stickel said the shift will also help people understand how Alaska is getting its oil price predictions.
“The idea is that it won’t be a group of us just sitting down and deciding on the price forecast. It will have a rather transparent protocol,” he said. “Anyone can say, ‘OK, this is how they grabbed the futures market price.’”
Another factor is that Alaska’s production has declined. The state is putting less oil into the market than it used to.
Stickel said Alaska’s production represents about 0.5% of daily global demand.
It isn’t clear if the change in the way the state forecasts the price of its oil will have a measurable effect on the way the state does business.
Rather, it’s a reflection of Alaska’s diminishing role in the oil markets that it sells into.
“Alaska is now a price taker,” Stickel said.
As opposed to being a price maker. Being a price taker basically means that the state doesn’t produce enough oil to impact prices in the markets that it sells into.
“We used to be a more significant supplier to a smaller market. Now we’re a smaller supplier in a more global market,” he said.