Alaska By the Numbers – October Edition

If you check your bank account on Thursday, you should receive your $1,600 PFD. I hope you enjoy it!

But if you read these pages, you probably know that deposit is smaller than it would have been if paid according to the statutory formula. I previously estimated the “right” number at $2,931.

Now that the PFD division has released the number of applications it received this year, I’ve revised that estimate up to $2,989.

More PFD Estimates

Senator Wielechowski joined the PFD estimating party last month saying he calculated the number at $2,982. Brad Keithley had previously calculated it at $3,029.

I’m sure there are other estimates out there. And I bet, they are all in the same ballpark.

There’s no way to get the real answer until the Department of Revenue releases their annual report (maybe the Senator got the inside scoop?). But I think we are pretty safe saying it would have been around $3,000.

Investment Returns are Looking Good

The APFC hasn’t released their monthly performance report for August just yet. But, based on the market performance year-to-date, and the fund’s historic performance, it looks to me like the Permanent Fund is on track to earn $6.2 billion ± $7 billion in FY19 (they earned $5.5 billion last year and $6.7 billion the year before that).

Of course, the risk of a market correction is mounting in the minds of many. Perhaps the APFC is putting more weight on that possibility. Their last projection was for $3.6 billion in earnings during FY19. We should know more soon.

Oil Production is Up

September production increased to 499,394 barrels per day according to the Department of Revenue’s daily tracker. This is about 10,000 barrels per day higher than I had anticipated.

From what I can tell, this is due to a delay in converting the Oliktok pipeline back to NGL delivery. I was expecting that to begin in August. But, the RCA order on the matter now shows a decision deadline of January. Since those NGLs aren’t being injected into Kuparuk, they are flowing down TAPS.

After adjusting for the new timeline, and as the summer cycle comes to an end, I’m projecting October production to be in the range of 525,000 ± 33,000 barrels per day.

My estimate for FY19 thus increases to 517,336 ± 17,000 barrels per day. The biggest remaining variable is when the production from Moose Pad and GMT1 start flowing (expected to begin sometime between December and March).

Oil Price is Holding on

The price of a barrel of oil delivered to West Coast refiners climbed back up to $77.63 in September. This is up from August’s average of $73.82 and brings the fiscal-year-to-date average price to $75.88 (last fiscal year’s average price was $63.62 and the year before was $49.46).

Iran sanctions continue to be the wildcard on oil prices, along with issues in Venezuela. And the trade war continues to create static with traders. As of now, those factors are propping prices up.

With Saudi Arabi announcing they won’t increase production, and with the US government saying they won’t release crude from the Strategic Petroleum Reserve, it looks like we are in for some higher prices for a little while.

The general belief is that mid-continent shale producers will start ramping up soon, as the higher prices attract more investment, thus putting downward pressure on prices. We will see how long that takes.

Of course, we could see an end to sanctions on Iran and a resolution of trade disputes happen at any time. If that happens, you would expect to see the bottom drop out of oil prices very quickly.

But that doesn’t appear likely right now. October began the month with a bang, as oil prices topped $80 a barrel on the first day of the month. Some analysts are saying there is a very real chance of prices hitting $100 by the end of the year. This edges my purely statistical model to just under $80 for October.

Of course, there is a lot of volatility in oil prices and a lot of moving pieces that can break in either direction. As of right now, I’m increasing my projection of the FY19 average to $79.87 ± $8.

But, the stage is set for big swings to occur in either direction. Hold on for a bumpy ride. And the balance of risks plays to the downside looking beyond next year.

State Budget Problems Continue to Lurk

Elections are coming fast. We’re now just a month away from knowing who gets to try to tackle the FY20 budget.

My preliminary projections (including the higher oil prices and coming production) are suggesting they will have about $6.1 billion of UGF revenues to pay the bills and a PFD next year. That’s a $2.9 billion POMV draw, $2.7 billion in oil revenues, and $0.5 billion from other sources.

The full PFD would cost $2.1 billion to fund, leaving $4.0 billion to pay for the operating and capital budgets. It’s looking like there will be about $1 billion revenue less than needed to balance the budget with a full PFD. So, next session could be challenging again.

I expect some combination of budget cuts and a PFD reduction will get the job done. Or, as I wrote before, they can probably just fill that gap from the earnings reserve without too much concern.

The Labor Market is Looking Better

The Department of Labor reports the unemployment rate fell to 6.7% in August, a fourth consecutive month of improving unemployment rates.

Job totals fell a little in August, but were mostly flat, as expected. The total job count stood at 348,800 by last count, down 2,400 jobs from the previous month. These were mostly seasonal jobs that are ending for the year.

I am expecting September numbers are to fall to a little over 340,000 as the summer starts wrapping up. If that number proves out, it will be the first month of increasing seasonally adjusted jobs in 3 years.

While I expect the job market to be growing again during the fourth quarter, 2018 looks like it will post an average annual loss of about 700 jobs, year-over-year. The annual average job count is on pace to be around 328,300. But next year is looking like it will post some growth. 

All in All Things are Looking Bright

September was a little boring on the data front. Everything came in more or less as expected. I’m guessing next month’s data will be a little more exciting.

But all in all, things are looking up for Alaska. The recession is ending, the budget gap in shrinking, and the oil patch is buzzing. There are good reasons to be optimistic. So, go enjoy that PFD.



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