1/25/2016

Oil Prices Tank


Oil prices affect our daily lives, as consumers, drivers and commuters - but the new 12-year low in the cost of a barrel is an unusual situation. 

With the lifting of sanctions against Iran, the market, already oversupplied, is expected to be flooded. It's the anticipation of this which pushed the price of Brent crude down below $28 recently. 

Bizarrely, that makes the cost of the oil inside a barrel less than the cost of a barrel itself.


Crude oil is at a 12-year low and that means it’s even cheaper than milk. 

The price of one gallon of West Texas Intermediate crude is equivalent to about half a gallon of Class III milk, the benchmark traded on the Chicago futures market. That’s the lowest ratio since 2004. 

 WTI dropped to $26.19 a barrel in intra-day trading Wednesday, the lowest level since May 2003. That’s equivalent to 62 cents a gallon. Milk futures traded at $13.74 per 100 pounds, or $1.18 a gallon.

Several states that are dependent on energy revenue are facing strained budgets due to low oil prices, and at least three — Alaska, Louisiana and New Mexico — are at risk having their credit ratings lowered, according to a report from Standard & Poors Ratings Services.

"In short, the more aggressive a state was with regard to its assumptions and use of oil-related revenues during the oil boom, the more acute its fiscal pressures now, in the oil price bust," according to S&P.

"For states with greater budgetary reliance on oil-related revenue, the unrelenting decline in prices places a larger budget on state lawmakers to identify and enact corrective fiscal measures." 

The report, entitled "Collapsing Oil Prices Seep Into State Credit Profiles," suggests that as state lawmakers head into session in the next budget season, their true fiscal situation "could be more intense than what their official forecasts currently anticipate." 

The report surveys the situation in eight major oil-producing states: Alaska, Louisiana, Montana, New Mexico, North Dakota, Oklahoma, Texas and Wyoming. 

S&P pointed out that all of the states in the survey forecast a higher price for oil than what the ratings agency expects in 2016 ($40 per barrel). 

For example, Alaska has a fiscal 2016 price assumption of $49.58 per barrel, according to S&P, while Louisiana's is $48.02 per barrel and Texas is $49.48 per barrel.

Looking ahead to fiscal 2017, just one state (North Dakota) is identified as having a forecast in line with S&P ($45 per barrel).
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