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Oil price crash impacts ND

BISMARCK – A more than 20% drop in oil prices over the weekend will mean adjustments for state budget forecasters, according to Lynn Helms, director of North Dakota Department of Mineral Resources. The price of West Texas Intermediate crude oil was down as much as a 34%, one of the largest price drops in decades. “It is never a good time for such a significant price drop, but the timing of this drop does allow the state to plan ahead for the next legislative session and will allow lawmakers to adjust priorities in preparation for the next biennium,” Helms said in a news release. “The price in the North Dakota budget forecast is $48.50 at the wellhead, which we are significantly below at this point. While the impact on revenues from gross production tax and extraction tax will be immediate, it typically takes 3-6 months to work those impacts into any type of revised revenue forecasting. Likewise it typically takes 3-6 months for this type of price drop to impact to oil and gas activity. “Unless prices rebound within the next 30-60 days, we can expect to see an impact to production and field activity. In both 2008 and 2015 similar price drops took two years for prices to fully recover. Oil production will likely remain flat to slightly down during that time,” he said. He attributed the drop to two back-to-back factors: the expected economic impacts of the widespread virus COVID-19 (coronavirus) and the unexpected dissolution of existing OPEC and Russia production agreements following discussions of proposed additional production restrictions needed to stabilize prices during the COVID-19 outbreak. “I worry about this in the long run,” Sen. Kevin Cramer, R-ND, said on Fox Business. “There is no question you will almost certainly see some sort of a tightening. You will see the value chain in oil production will be squeezed first by the producers. Then we’ll see how the producers themselves come out of it on the other side. At a time of demand decline, having a glut is not healthy but then to have an oversupply strategy on the part of the Russians and the Saudis is devastating. I think we’ve got to have some geopolitical leadership here that brings this all back into play. Frankly, all of this other stuff is emotional, but when it comes to commodities, supply and demand and fundamentals still matter in the long run and this looks like it could be a very long down cycle if something doesn’t happen.” As for Russia, Cramer said, “They’re more dependent on it than we are. While we’re very dependent on oil and oil is very good for our economy, we are not a petro state. We have a much more diverse economy and that’s been demonstrated through other down cycles in oil price. We’re more likely to weather this than either of the other two countries arguing right now. None of us should have to go through it or want to go through but if we had to go through it we’re probably better positioned than they are.”