Oil price dives, and ND responds
Just as the U.S. appears to be wrapping up tariff disputes, another international trade war has begun. Following the announcement on Friday that oil production agreements broke down between Russia and Saudi Arabia, North Dakota finds itself in the middle of another international price fight.
Department of Mineral Resources Director Lynn Helms said it's back to every man for themselves after Russia and Saudi Arabia walk away.
"Friday, big surprise to myself and to the markets to have not just to have no agreement over how to respond over coronavirus, but it actually blew up their entire sharing agreement,” Helm said.
Oil prices have dropped more than $20 a barrel in the last 30 days. Even going as low as $28 a barrel over the weekend; affecting oil production.
"But we fully expect that in another quarter or six months, we're gonna see less drilling rigs and less frack crews, unless this comes back very rapidly,” Helm said.
But it might be too late, because Helms said it could take years to fully recover from drops like this. For the industry, these bring flashbacks to 2015, when a similar price dive took years to recover from.
However, it's not all doom and gloom market analysts say prices at the pump could drop by 50 cents a gallon. President Donald Trump even tweeting, "Good for the consumer, gasoline prices coming down!"
Helms says his department is already being asked if wells are going idle. They predicted slow growth for this year, and are adjusting their models to predict flat or even decreased production.
The oil and gas industry is one of North Dakota's largest revenue sources, predicted to bring in nearly $5 billion. However, OMB Director Joe Morrissette says his office will be adjusting budget forecasts in the coming weeks that will reflect the latest market moves.
The budget forecasts are based on oil prices averaging $48 a barrel. That benchmark has been on a steady decline for the past few weeks, and has dropped to around $30 for most of Monday.
"We've tracked above the forecast so far this biennium about 5%. So we've exceeded the forecast by $70-80 million so far this biennium. So we have a little bit of a cushion built in there,” Morrissette said.
He says that if prices stay in the low thirties, budget stabilization funds and the newly-formed Operation Prairie Dog funds won't fill up. And every $1 change in price equates to $100 over the biennium.
For those funds, like Operation Prairie Dog, to be full, oil prices need to be at least $40 a barrel for the rest of the year. However, by the end of the month, Morrissette said the state's budget stabilization fund will be at its capacity of $726 million.