U.S. state budgets to face low energy prices for years to come -Fitch

SAN FRANCISCO : Low oil, natural gas and coal prices will continue to put downward fiscal pressure on states that rely on those resources to fund their budgets, ratings agency Fitch said on Thursday.

While OPEC’s agreement to implement production quotas boosted oil prices this week, Fitch’s long-term base case price forecast remains $ 45 a barrel in 2017, $ 55 a barrel in 2018 and $ 65 a barrel in 2019, said Marcy Block, an analyst at Fitch.

U.S. crude oil prices are hovering around $ 50 per barrel compared with over $ 100 a few years ago.

“Commodity prices will continue to dampen energy states’ collection of severance taxes and related revenue sources, while personal income and sales tax collections will remain suppressed, prolonging fiscal pressure,” she said.

Negative outlooks for Alaska, West Virginia and Oklahoma were unchanged due to the states’ lack of income diversification.

The outlook for large energy producers like Texas and North Dakota remains stable due to multiple sources of state revenue.

President-elect Donald Trump’s pledge to roll back environmental regulation will not be enough to spur significant fossil fuel production in the face of a glut of crude oil, an international agreement to reduce coal use, and the increasing use of renewables, said Block.

The plunge in oil, natural gas and coal prices during the past two years has prompted Fitch in 2016 to downgrade Alaska to ‘AA+’ from ‘AAA’; Louisiana to ‘AA-‘ from ‘AA’; and West Virginia to ‘AA’ from ‘AA+’.

Oil production will rise over the next two years, but that increased production will add to excess inventories until demand accelerates, which will keep prices below the 2014 highs, Fitch said.