Budget forecast ebbs and flows with oil

BISMARCK - With a week to go before the release of an updated North Dakota revenue forecast, a working budget group was still trying to determine the final numbers to plug into its formula during a Wednesday meeting at the Capitol.
The state Advisory Council on Revenue Forecasting, a group through the state Office of Management and Budget, met Wednesday with a major focus of discussion on oil tax revenue.
Kathy Strombeck, head analyst at the state tax department, said the group agreed on using projections on the New York Mercantile Exchange (NYMEX) for oil prices as a base in its forecast. NYMEX is projecting West Texas Intermediate (WTI), a U.S. benchmark for oil prices, to be just shy of $60 by December 2015 and be approximately $66.50 by December 2017.
“I think we’re probably going to stick with 1.1 million barrels per day as an average,” Strombeck said.
The WTI price doesn’t factor in the discounted price of North Dakota crude, currently at about $8 to $9 per barrel, according to industry leaders.
The WTI price was at just under $48.50 per barrel on Wednesday; it’s been near the $50 level for several weeks.
Group members said it was prudent to plan the budget with the assumption that the oil tax triggers would both kick in.
“We’ve got a huge structural problem in the future. I’d rather we err on the side of being cautious,” Rep. Al Carlson, R-Fargo, said.
Daniel White, senior economist with Moody’s Analytics, said the state’s economy may slow a bit, but should recover eventually when oil prices recover.
“There’s still the shadow of low oil prices,” White said.
Until next week’s forecast arrives, the Legislature has been using a January forecast from North Dakota Legislative Council. The January forecast projected oil and gas tax revenue for the 2015-17 biennium to be at about $4.27 billion, down from $8.32 billion projected in December. A reduction in general fund revenues for 2015-17 of $550 million was also projected.
The January estimate was based on oil prices between $45 and $65 per barrel and 1.2 million barrels per day in production for 2015-17.
A pair of oil tax triggers that could lead to a loss of billions in revenue was factored into the January forecast.
Lawmakers have been prioritizing items in agency budgets and considering building in contingencies in the event oil prices rebound and the triggers don’t hit during the biennium.
Strombeck said other factors, including the number of drilling rigs operating in the state and how that trickles down into employment and sales tax revenue, will also impact the forecast.
There were 112 active drilling rigs in the state as of Wednesday, down more than 50 from last summer. Industry experts and state regulators have estimated that 120 to 125 rigs are needed to maintain the current production level, which was at just over 1.2 million barrels per day in December.